The term cooperative bank refers to a financial institution that is owned by its customers and provides services to both its members and non-members. Cooperative banks accept deposits and loan money to its customers in addition to offering other financial services.
As is the case with credit unions, cooperative banks are oftentimes created by affinity groups, which share a common set of interests or values. However, cooperative banks are typically larger than credit unions and can have a much greater geographic footprint. While a cooperative will still elect local board members, the local branches may rely on a central location to execute their longer term strategy. Cooperatives may also share back office functions, thereby realizing operating efficiencies.
Because of their size, cooperatives are also subject to additional oversight under existing banking rules and regulations. Cooperative banks provide their members / owners with financial services such as savings accounts, personal loans, and mortgages. They also share the same set of objectives with credit unions, including promoting thrift, and providing members with competitive interest rates on both loans as well as deposits.
Cooperatives are typically not-for-profit organizations, and will normally redistribute profits to members via interest payments or a special dividend. Publicly-traded banks that operate as cooperatives dilute their membership’s voting rights by offering shares of common stock. These organizations are not true cooperative banks, but are sometimes referred to as semi-cooperatives.