That is the assessment of a specialist in community banking, who says that the concept would help create a more “inclusive and resilient” economy.
Mark Hall, deputy head of engagement at the Royal Society for Arts, Manufactures and Commerce (RSA), was commenting as plans backed by Preston City Council to create the “North West Mutual Bank” advanced to the point of applying for a licence.
Along with Liverpool City Council and Wirral Council, the authority has been developing the idea for the past two years.
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The institution would provide loans and accounts only to those living and operating in the region.
Mr. Hall believes that the fallout from the 2008 financial crisis points towards the need for locally-focused banks.
“A lot of the big banks started to reduce lending after the crash, whereas in Germany – where they have got a well-established layer of regional banks and co-operatives – they were actually able to increase lending to small businesses.
“Regional banks have got a lot more information about their customers, while bigger banks are a lot more reliant on algorithms, because they are not as close to their community.
“This has been a hugely challenging year, particularly for small businesses – and we see community banks as being more or less an essential part of the social and economic infrastructure to build back better.
“Having these banks across the country will improve the resilience of those [individual] areas and the overall economy if there is another financial crisis in a few years,” Mr. Hall said.
A report by the RSA last year found that the UK’s financial landscape is dominated by commercial banks, which make up 82 percent of the banking sector. In Germany and France, well over half of financial institutions are co-operatives, mutuals, credit unions or state-backed organisations.
A Bank of England survey in 2016 found that almost one in three small businesses were unable to access the financial support that they needed to grow.
Mark Hall says that local banks like the North West mutual being backed by Preston channel their lending into “the real economy, rather than speculative trading“ – and can help both businesses and individuals as a result.
“They ensure that money flows around the local economy rather than leaking out to London and the South East – so it helps regions such as the North West develop a more vibrant and inclusive local economy.
“Community banks also support financial inclusion – for instance, they offer everyone in the region access to a full current account, whereas the big banks might only offer limited access to people who are a bit more vulnerable. That means those people are not able to benefit from things like direct debits that reduce [their] costs.
“Regional tend to have a real commitment to maintaining traditional bank branches, which is critical for people who are more vulnerable, but also businesses that trade in cash.”
The North West Mutual Bank was registered with the Financial Conduct Authority in May 2020 and, as well applying for a licence to operate, is also poised to acquire the necessary trademarks and intellectual property required to function.
Preston City Council, which has earmarked £1m for the project over the next two years, last week defended going into a joint venture with Liverpool City Council, after the Merseyside authority was criticised in an inspection report which led local government secretary Robert Jenrick to describe it as having a “dysfunctional culture”.
Preston’s cabinet member for community wealth building, Cllr Freddie Bailey, said: ”Any directors, once this bank is established, have to be vetted by the Bank of England.
“And once it’s set up, it will be a member-owned co-operative bank, which means that it will be the members that control this bank – not Preston City Council, Liverpool City Council or Wirral Council,” Cllr Bailey told a meeting of Preston City Council.
BANKING IN NUMBERS
2 in 3 – UK bank branches closed between 1990 and 2020.
13 percent – proportion of free-to-use cash machines that closed between 2019 and 2020.
75 percent – proportion of UK population that has an account with one of the “big four” banks. 1m+ – number of people in UK without a full bank account.
1m+ – number of people in UK without a full bank account.
Source: ‘The Road the Resilience’ report, RSA, 2020