The only real function of the bank's equity buffer is that it's not tied to any single project the bank finances - so the discount window doesn't lose money if a single project goes tits-up (similar to how insurance works). But you can achieve that with a credit coop model too: Say you have twenty projects, each of which puts down 28 % of its capitalisation in margin, and they agree to be jointly liable for up to 8 percentage points of that margin. This reproduces exactly the capital structure of 5:1 leveraged firms funding from a 10:1 leveraged bank.

The mutual model of banking has advantages and disadvantages. It has ambiguous economies of scale. Which can be either a good or a bad thing, depending on the political and regulatory environment. It probably resists capture by bankers better than a demutualised institution, but is worse at resisting capture by its customers. It will probably work best in an environment where deposit-taking institutions are separated from loan-originating institutions, since deposit handling is not the core interest or competence of the people running it. But separating lending and depository functions is a worthwhile sort of thing to do anyway.

(And frankly there is no good reason not to outright nationalise the deposit handling system. Though there are also few compelling reasons to nationalise it once you've split it away from the loan-originating institutions.)

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.