How a Community Bank Can Outcompete the Big Four Banks

Kevin Cox
2 min readMar 28, 2024
$500,000 Loan with Bank Sharing Interest with Borrowers

Community Banks are defined as banks owned by their depositors and borrowers. Each depositor gets one share, and each borrower gets one share, which entitles them to one vote and no capital gains or dividends.

It is assumed that the bank needs 2% of the interest collected to pay to operate the bank, and depositors get an 8% dividend, but there is a limit on the amount of money each person can have on deposit.

Banks charge borrowers 10% on their loans, but they take 7.5% of the repayment (75% of 10%) off the amount owing, which reduces the time for the borrower to pay off the loan. Compared to a 6% loan from a regular Bank, the Bank collects $105,836 more, and the borrower pays $108,046 less over the ten years. Interest sharing pays the borrower shareholders a lower cost and the depositor shareholders high-interest rates. In a regular bank, this money goes to the bank's shareholders, who are not necessarily borrowers or depositors.

The extra money comes because the creation of a loan creates money, and the longer it takes to pay off the loan, the more expensive the loan. Sharing interest is a more economically efficient way to create money.

The Reserve Bank can use the approach to slow down or speed up the money supply to reduce inflation. Still, Community Banks will always be able to outcompete Banks because their depositors and borrowers are shareholders.

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Kevin Cox

Kevin works on empowering individuals within local communities to rid the economy of unearned income.