Catchy phrase, but is it a business model? Photographer: Victor J. Blue/Bloomberg
Catchy phrase, but is it a business model? Photographer: Victor J. Blue/Bloomberg

Founded and owned by labor unions, Amalgamated Bank is supposed to be different from other lenders. It proudly recalls being the first institution to offer unsecured personal loans to “working people and their families” in 1924. Its equity index funds don’t just track the S&P 500, they also engage in “aggressive shareholder activism” on behalf of “sustainable social and environmental practices.” Perhaps most strikingly, Occupy Wall Street has chosen to park its savings at Amalgamated.

Yet as Bloomberg News's Max Abelson reports, Amalgamated Bank bears a striking resemblance to the large behemoths loathed by left-wing activists. This isn't a conspiracy; it's simply a reflection of the realities of the banking industry.

Like all banks, Amalgamated Bank makes money by selling short-term deposits at one set of interest rates and making risky loans for longer periods of time that pay higher interest rates. It got into trouble during the go-go years by expanding willy-nilly into bubbly housing markets in Nevada and southern California. (According to the Federal Deposit Insurance Corporation, Amalgamated nearly doubled in size between 1999 and 2008.)

Unlike big firms that got bailouts and liquidity assistance from the Federal Reserve, Amalgamated Bank’s shareholders ate those losses and eventually sold out to a pair of billionaire investors. The bank now makes money by funding leveraged buyouts and supporting aggressive debt collectors, a shift that bothers union activists such as Andy Stern, the former president of the Services Employees International Union.

There is no easy way to resolve this tension between being a profitable bank and accommodating the political preferences of its owners. My modest suggestion: Get out of the lending business and focus exclusively on offering deposit accounts, payment processing and custodial services to unions, their members and their families. These accounts could be offered free of charge as a benefit of union membership or at a cost subsidized by dues. On the asset side, Amalgamated would stick to Treasury bills, or it could join the Federal Reserve System and hold bank reserves.

Amalgamated would no longer make any profits but it would be insulated from potential future losses. It would also save its union members money by cutting payroll. After all, there is no point in employing people to evaluate credit risks or reach out to private equity firms if you are no longer in the business of lending. Perhaps most importantly, a streamlined bank would give depositors a clear conscience about where their money goes.

(Matthew C. Klein is a writer for Bloomberg View. Follow him on Twitter.)