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title, section, order, summary

title	section	order	summary
Has This Been Tried?	Growing the Sector	55	Three real institutions that financed co-ops (Mondragon's bank, America's co-op bank, and Italy's co-op funds), what they got right, how they went wrong, and what the pilot takes from each.

Has This Been Tried?

A bank that lends to co-ops isn't a new idea. At least three serious versions exist, and each teaches something different. One built a whole economy of worker co-ops, and then quietly became an ordinary bank. One was created by Congress, and ended up lending to expensive New York apartment buildings. One is funded by co-ops themselves and still holds most of what it has collected over thirty years.

This page goes through what each one actually did, with the failures left in, and what the bank and the pilot take from them.

Mondragon's bank: Caja Laboral

What it was. In 1959 the young Mondragon co-ops in Spain's Basque Country founded their own savings bank, the Caja Laboral Popular ("the Working People's Bank"). Local people deposited their savings there, and every member co-op was required to bank there too. Until the 1980s it lent almost only to co-ops. Apart from some government job-creation money, it was their only source of capital from outside their own members, and its loans made up about half of the co-ops' capital (Morris, The Mondragón System, 1992).

What made it unusual wasn't the money. It was the help. In 1969 the bank set up a separate Entrepreneurial Division, which worked more like a business incubator than a loan desk (Morris, 1992):

• When a group of workers came with an idea, the bank picked one of them to be manager, paid them a salary, and put them on a team that studied whether the business could work. That often meant visiting factories elsewhere in Europe to learn how the best ones did it.
• The bank had departments for marketing, exports, production planning, factory design, legal setup and accounting, and the new co-op could use all of them.
• The bank put up 60% of the start-up money. The government's job-creation program put up 20%, and the founders themselves 20%. The bank also covered the new co-op's operating losses for its first two years, as a loan to be repaid later.
• One bank staff member was assigned to each new co-op as its "godfather" and sat in on its board meetings for the first year.
• Every co-op sent the bank monthly financial reports and got a full audit every four years.

The famous number, and why it needs care. Of the 103 co-ops created between 1956 and 1986, only three were shut down (Whyte and Whyte, Making Mondragon, 1988, as summarized by Participedia). That counts co-ops the bank rescued, restructured or merged as survivors, and five things sit behind it:

• The money was cheap. One new co-op, a maker of seed drills, borrowed at 8% when the going market rate was 15%. The bank could do this partly because every co-op had to do its banking there, which kept its cost of money low, and partly because its managers were paid co-op wages (Morris, 1992).
• The help was subsidized. The economist David Ellerman estimated in the early 1980s that what new co-ops repaid for their start-up support covered less than half of what it actually cost the bank (Morris, 1992).
• Survival often meant rescue. In Spain's recession of the late 1970s and early 1980s, the bank's business division switched from starting co-ops to saving them. In 1983 alone, 34 of about 100 co-ops needed its intervention department. The bank replaced managers, changed product lines, merged co-ops, and moved workers between them, and it wrote off about $160 million in loans (Morris, 1992). Many of the co-ops that "survived" did so because the bank restructured them. That's a real achievement, but it isn't the same as surviving on their own.
• The market was protected. Mondragon's biggest industry was household appliances. In 1980 Spain protected them from imports with a 35% tariff, and that protection only fell away (to 5% in 1991) as Spain joined the European market (Morris, 1992).
• Then the bank moved on. Once a change in Basque co-op law allowed it, in the early 1980s, the bank started offering mortgages and car loans to the public, and its deposits grew far beyond what the co-ops needed. By the early 1990s only about 15% of its loans went to co-ops. In 1991 the Entrepreneurial Division was spun off into a separate consulting co-op, LKS (Morris, 1992).
• And the flagship later failed. Fagor, the appliance maker at the heart of the group, expanded across Europe and China largely on borrowed money, lost its main market in Spain's housing crash, and went bankrupt in 2013 with about €800 million (about $1.1 billion) of debt (The Local, 2013). Full group support didn't save it.

What the pilot takes from it:

1. Maybe the help mattered more than the money. Mondragon combined cheap loans, a protected home market and intensive hands-on support, and nobody can tell which one did the work. The pilot tests one piece of that directly (see the support lottery).
2. Count rescues honestly. A bank that can quietly restructure its borrowers can make almost any survival rate look good. That's why the pilot counts a co-op that's been restructured to avoid default as a loss, not a survivor (see Keeping zombies alive).
3. A co-op bank drifts toward ordinary lending once co-op demand runs out. The pilot's bank can lend only to worker co-ops, and the bank can't change its own charter (see The Bank). That doesn't stop a legislature from changing it, which is how Caja Laboral's drift began.
4. The pilot doesn't copy the cheap money. It lends at market rates, for the reasons on the bank's page. The help it gives is a subsidy, so it's counted against the bank's results and tested separately (see the support lottery).

America's co-op bank: the National Consumer Cooperative Bank

What it was. In 1978 Congress created the National Consumer Cooperative Bank to lend to co-ops that couldn't get credit from ordinary banks. It came with a separate office to give new co-ops technical help and start-up money. The law authorized up to $300 million of federal capital over five years (Public Law 95-351). According to one of its later board members, the public investment that actually went in was about $100 million, to be repaid over 40 years (Barnes, board member 1982–86).

Why it never became a worker-co-op lender. The law was written for co-ops whose members are consumers: food co-ops, housing co-ops, co-ops that buy things together for their members. To qualify, a co-op has to serve members "who are ultimate consumers" of what it provides. Co-ops of producers can borrow, but loans to them are capped at 10% of the bank's assets (12 U.S.C. § 3015). A worker co-op, whose members supply their work rather than buy its products, fits that law awkwardly at best. Worker co-ops were never what it was built for.

What happened to it. The Reagan administration tried to shut it down in 1981. Congress resisted, and the compromise was to privatize it. On December 31, 1981 it became a co-op owned by its borrowers, and by 1985 it was fully private and renamed the National Cooperative Bank (Next City, 2019; Encyclopedia.com). It survived, and it had about $2.6 billion in assets in 2019. Its technical-help office was later spun off as a separate nonprofit (12 U.S.C. § 3051). But in the words of one of its former directors, it became "a big lender to fancy New York City housing coops, large grocery wholesalers" and other "healthy businesses, few of whom need help getting credit" (Barnes).

What the pilot takes from it:

1. The charter decides who gets served. A bank "for co-ops" will lend to whichever co-ops are safest. The pilot's bank is chartered for worker co-ops only, and only those that accept the lock.
2. A target nobody enforces is not a target. The 1978 law told the board to use its "best efforts" to keep at least 35% of its loans going to co-ops of low-income people or facilities they use (Public Law 95-351). Missing that target had no consequence, and the bank drifted toward borrowers that could have borrowed anywhere. The pilot has fixed measures, published in advance, and a date when it has to answer for them (see The Test).
3. Politics can change what a bank is. It survived an attempt to close it by becoming something else. A charter can't protect against the legislature that wrote it. The pilot is built so that a failed test shuts it down cleanly, rather than letting it drift into a different mission (see The Constitution).

Italy's co-op funds: Coopfond and the Marcora Law

Italy has two different kinds of co-op fund, and both are useful.

Coopfond: money from the co-ops themselves. Since 1992, Italian law has required every co-op to pay 3% of its annual profit into a co-op development fund, usually the one run by its federation (Lomuscio and Tortia, 2023). Coopfond is the fund of Legacoop, the largest federation. It also receives whatever is left of a co-op's assets when it's wound up, or when it converts into an ordinary company. It invests in co-ops through loans and temporary, time-limited stakes, and recycles the money as it's repaid. From 1993 to 2023 it collected about €596 million. After three decades of losses and grants, about €499 million, or 91% of what it collected, is still in the fund. Around 2,400 co-ops pay in, about €18–20 million a year (Coopfond, 2022–23 sustainability report).

Two cautions. Those are euros as collected, not adjusted for thirty years of inflation, so the fund's real value has shrunk more than the 91% suggests. And it isn't a one-time endowment: new money arrives every year, and Italian co-ops pay the 3% alongside generous tax breaks on their locked reserves. Still, it's the closest real-world model for the federation's shared fund: the movement financing its own growth without spending its capital away.

The Marcora Law: public money matched to workers' own. Under a 1985 law named after the industry minister who proposed it, Giovanni Marcora, the Italian state helps workers buy out firms that are closing. It invests alongside the workers through CFI, a specialist co-op investor whose members include the industry ministry, Italy's business development agency Invitalia, and about 270 co-ops. Before investing, CFI studies whether the business can work and advises the workers, much like Mondragon's Entrepreneurial Division. Workers put in their own money too, often from their severance and unemployment benefits (Vieta, Euricse working paper, 2015).

The survival record is good. Of the 82 buyouts started between 2003 and 2014, 71 (87%) were still operating at the end of 2014 (Vieta, 2015). That's a young group, though, and buyouts are chosen with care: workers only try one when they're confident the business can work.

These are rescues of existing businesses, which the pilot keeps out entirely because of Uruguay's experience. It does lend for sales of healthy firms whose owners choose to sell to their workers, on a separate track (When an Owner Wants to Sell to the Workers). The difference is in how they're chosen. Marcora buyouts need the workers' own money and a specialist's study of whether the business can work. Uruguay's went mostly to politically connected firms that had already failed.

The warning in the Marcora story. The original law let the state put in up to three euros for every euro the workers invested. After Italy's main employers' association intervened, the European Union ruled that this broke its competition rules by giving worker buyouts an unfair advantage, and the program was suspended. A 2001 reform cut the state's share to one euro per worker euro, to be repaid over 7 to 10 years. From 2000 to 2006, while the rules were being rewritten, CFI made no new investments, and only a handful of buyouts happened at all (Vieta, 2015).

What the pilot takes from it:

1. A movement fund can last. Coopfond shows that a small cut of co-op profits, lent and invested carefully, can keep its value for decades. The federation fund is modeled on it.
2. Workers' own money in, alongside the public's. Both Mondragon (20% from founders) and Marcora (one to one) required workers to put money in. The pilot now asks founders for a small stake, at least 5% of the first loan, which they can pay in unpaid work instead of cash, because a cash buy-in shuts out workers with no savings (Help Before the First Loan).
3. Subsidies get challenged. Marcora's generous matching was the part that got struck down, and the program lost six years. The US has no European-style rule against state aid, but the political version of the same attack ("unfair competition with taxpayer money") works anywhere. A bank that lends at market rates is much harder to attack that way. That's one more reason the pilot's bank doesn't subsidize its loans, and why the help it does give is costed openly.
4. Italy locks the reserves, not the firm. An Italian co-op can turn itself into an ordinary company, but its accumulated reserves go to the co-op development fund, not to the members. That's a softer version of the lock, and it's weighed in Open Problems.

The pattern

	Mondragon's bank	US co-op bank	Coopfond	Marcora / CFI
Money came from	Local savers and the co-ops' own deposits	Federal capital	3% of co-op profits	The state, matched to workers' money
Hands-on help	Very intensive	A separate office, later spun off	Some	Feasibility study and advice
Who it served	Worker co-ops	Mostly housing and consumer co-ops	Co-ops of all kinds	Worker buyouts
What went wrong	Rescues flattered its record; it drifted into ordinary banking; its flagship failed	Drifted to safe borrowers after privatization	Its real value shrank with inflation	Its subsidy was ruled unfair and the program suspended

Four cases can't prove a rule. But two patterns stand out. The two that actually built worker co-ops, Mondragon and Marcora, both paired money with serious hands-on help before and after launch. And both banks drifted once their mission became optional, one because the law changed and one because nobody enforced its target. The pilot takes both lessons: it tests whether the help matters, and its mission comes with a deadline and a verdict.