JoshHeaps.Net/JoshHeaps.Net/Content/Socialism/who-gets-loans.md

title, section, order, summary

title	section	order	summary
Who the Bank Lends To	Growing the Sector	66	A bank that lends only to co-ops can still drift toward the safest ones, so part of the loan money is set aside for co-ops in lower-paid work, lending is published by group, and the final verdict has to say which kinds of co-ops it covers.

Who the Bank Lends To

The bank's charter says it lends only to worker co-ops. That stops it from turning into an ordinary bank. It doesn't stop a quieter kind of drift: lending mostly to the co-ops that were always the safest bets, like consultancies and software shops started by people with savings, and seldom to the home care, cleaning and food co-ops where many co-op members work today.

That drift matters for two reasons. It would make the test less useful, because a pass earned by consultancies says little about the work most people do. And it's the drift the founding plan predicts. A public lender judged on its losses has every reason to fund the safe bets. The plan calls that "risk-aversion under political accountability."

What we know

• It has happened here. The law that created America's co-op bank in 1978 told its board to use its "best efforts" to keep at least 35% of its loans going to co-ops of low-income people. Nothing happened when it missed, and the bank drifted toward borrowers that could have borrowed anywhere (Has This Been Tried?). Lending to safer borrowers may also be part of why it survived. That's the trade this page has to manage.
• It isn't automatic. A study of rated microfinance lenders in many countries over 11 years found that, across the industry, average loan size didn't grow and lending didn't shift toward cities. But lenders whose costs rose tended to make bigger loans, because small loans cost more to make per dollar lent (Mersland and Strøm, World Development, 2010; free copy). The pressure to drift is real, and it comes through costs.
• The sector may already be moving. The 2025 survey of US worker co-ops found that the fastest-growing industry was business consulting (US Federation of Worker Cooperatives, 2025). Only 242 co-ops answered the survey (survey page), so that's a signal, not a measurement.
• Enforced floors exist. To stay certified, a US community development lender has to direct at least 60% of both the number and the dollar amount of its loans to the low-income places or people it's certified to serve. It's checked every year from loan-by-loan data, with no rounding: 59.9% fails. A lender that misses in one year can still pass on its three-year record (CDFI Fund; Dechert, 2024). Those lenders exist to serve that market, though. This bank exists to run a test, so it copies the idea of a checked, published share, not the 60%.

Two groups, fixed in advance

Before the first loan, the pilot's filed plan defines two groups the results are reported on. The reviewers, not the bank, decide which group a co-op falls in when it applies.

• Co-ops in lower-paid work. In the co-op's industry, the average wage in its county is below the county's average for all private-sector jobs. The figures come from the federal count of employment and wages (the Quarterly Census of Employment and Wages), which covers nearly every employer, rural counties included. Where the county figure is withheld for privacy, the state figure is used, then the national one, and the report says how often that happened. The industry is the one the co-op registers under for its payroll taxes, so it can be checked against government records.
• First-time owners without much wealth. Most founding members, counted by their hours of work, have never owned a business, and their household wealth is below the median for people their age in the Federal Reserve's household wealth survey. Founders report their wealth in bands, sign it under penalty for false statements, and it's checked against their tax records with their consent. Founders count only if they work at least a set number of hours in the co-op's first year.

A co-op can be in both groups, one or neither.

Money set aside

About a third of the loan money, $90 million, is set aside for co-ops in lower-paid work. Other co-ops can't borrow it. Nobody waits in line. Co-ops outside the group borrow from the rest of the money, the same as before. That's a first guess, sized so the set-aside could fund a large share of the co-ops at the smaller loans this kind of work usually needs.

The standards don't change. Each loan is still judged on its own numbers by the same filed standards (Guarding the Pilot), and the limits on any one industry and county still apply. If the set-aside and the 25% cap on one industry ever clash, the cap wins.

Unused money goes back, but only after a check. At the end of year 4, any money not yet lent goes back to the general pool, but only if the reviewers certify two things:

1. The bank decided applications from lower-paid co-ops as fast as others, measured from a complete application, within a time limit filed in advance.
2. An extra-large audit of rejected lower-paid applications found that the bank applied its own standards.

If they can't certify both, the money stays set aside until the lending window closes. The verdict for lower-paid work is then "not tested," not "failed," unless the reviewers show that good applications really were scarce.

A shortfall with a clean audit is a finding. If good applications from lower-paid work don't come even when the money is there and the bank handled them fairly, that's evidence about where co-ops can work. It's reported that way, the same rule the pilot uses when applicants are scarce (The Pilot, in Numbers).

What counts. Only new money to a co-op counts, and loans to related co-ops are added together, so splitting one loan into pieces can't pad the numbers. If the reviewers later find a co-op was put in the wrong group, its loan is moved to its real group, and the set-aside figures are recalculated. A co-op that misstated its industry on purpose is treated like any other false statement to the bank, under the rules against sham co-ops.

This isn't a lending target. Nobody at the bank is paid or judged on how much it lends, to any group.

Priced like any other loan

Market rate means the whole cost of the loan, including the cost of making and servicing it, as a conventional lender would charge (What "market rate" means). Small loans cost more to make per dollar, so they carry a higher rate or a fee, as they would anywhere. The yearly rate audit checks that too. The bank can match repayments to a co-op's cash flow, with longer terms or a slow start, as long as the price for the risk stays the same.

So the set-aside isn't a subsidy, and it can't excuse a result. The money test is judged on the whole loan book, with no adjustment for the set-aside, whichever way it comes out.

Published by group

Every year the bank publishes, for each group: applications, approvals, rejections, offers the co-op turned down, withdrawals, rates, collateral, loan sizes, time to a decision, and how the loans are doing. It also publishes the same figures by industry, by rural or urban county (using the federal government's standard rural codes), and by the founders' wealth band.

To protect small businesses, every published table needs at least 10 co-ops in each cell, counting every combination of details shown. Whether individual loans are behind on payments is published only in totals. Loan-by-loan data goes only to vetted researchers under a data-use agreement.

Results by group

The pilot still passes or fails on the whole portfolio, using the two measures filed in advance (The decision rule). Adding group results to the decision would make it easier to find one that looks good.

But the final report gives both measures, survival with fair pay and the bank's money, for each group. Because the groups are much smaller than the whole pilot, the plan files in advance the smallest difference each group could reliably show. For groups of a couple of hundred co-ops, "too few to tell" is the likely answer. When it is, the report says so, with the range of possible results and no single headline number.

Differences between groups are claimed only if a test of the difference itself, filed in advance, finds one. The verdict says which kinds of co-ops it covers. "Passed, with too few lower-paid co-ops to tell" is a different result from "passed across the board," and nobody gets to quote the first as the second.

The reviewers, not the bank, work out the bank's return for each group, using a method filed in advance for splitting shared costs. They report it with and without shared overhead, so the split can't be rigged to make one group look expensive.

If the pilot passes, any larger program's lending to lower-paid work is sized from that group's own result. If that result is "too few to tell," that lending can't grow faster than the rest (After a Pass).

Treated the same

The yearly audit of rejected applications (Making It Last) now also looks at the two groups, in three ways.

• Same numbers, same answer? It compares approvals, rates and collateral across the groups for applications with similar numbers, and checks samples of approvals in both groups against the filed standards.
• Are the numbers themselves fair? It checks each part of the bank's scoring, like collateral, credit history and founders' own money, to see whether it counts against a group more than it predicts repayment. Then it publishes whether a different scoring would predict repayment as well with less of that effect.
• Is the bar too high? If approved co-ops in one group repay better than the rest, the bank was demanding too much of that group. The lottery among borderline applicants (The Pilot, in Numbers) is the cleanest place to check.

The audit also reports by the founders' gender and race, as the pilot already does, collected separately from the loan file so underwriters don't see it.

What this doesn't solve

• It can't make people apply. The set-aside makes money available. It can't make groups come forward. The founding lottery and sponsors like unions and worker centers do that, and the pilot can only measure how well.
• The lower-paid group is wide. It runs from the lowest-paid work to work just under the average. The bank could meet it mostly at the top. The results are also published by fifths of the local wage scale, so that shows, but nothing requires lending at the bottom.
• Market prices aren't neutral. In home care and cleaning, prices are largely set by whoever buys the work, like Medicaid or a contractor, not by how well the business is run. A co-op that fails there may be failing the price, not the co-op form. Comparing co-ops with conventional firms in the same industry catches some of that, not all.
• Industry is a rough stand-in. A co-op in a low-wage industry can still pay well, and the reverse. Industry is used because it can be checked. The pilot publishes members' actual pay too.
• Wealth is hard to check. Tax records show income, not savings. Some founders will understate their wealth.
• The numbers are guesses. $90 million and year 4 are first guesses. The pilot publishes how much of the set-aside was used, so the next design can do better.