Local banking role mooted

Birmingham Council House

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Birmingham City Council is weighing up a return to municipal banking in a bid to boost economic development in Europe's largest local authority.

In a process being dubbed 'reverse PFI', the city could buy land, buildings or IT equipment, which it would then lease to firms struggling to access finance during the credit crunch.

Chief executive Stephen Hughes said Birmingham would work with an expert partner — possibly InvestBX, a West Midlands stock exchange funded by the regional development agency — to assess investment proposals.

"This is an attempt to address the issue that businesses say they can't get access to finance from banks in the current climate and perfectly good investment proposals are not getting funded," he said.

Mr Hughes added there was no limit to the size of project the council would consider funding: "As long as the risk of default can be managed then the scale of the lending is a secondary consideration."

Assets would be leased at "commercial rates" and funding for borrowing would come from the council's balance sheet.

At a full council meeting, councillors passed a motion calling for consideration to be given "to the re-establishment of a municipal bank in Birmingham for the benefit of our citizens and individuals". Mr Hughes' team is working on a process for applicants to bring forward ideas.

Birmingham has a rich banking history. The Birmingham Municipal Bank, formed in 1916, operated for 60 years as a local authority department and was the forerunner of TSB.

The council could also fund the redevelopment of New Street Station through tax increment financing where the council borrows money against anticipated future increases in business rates.

"Birmingham is really sizing itself up for some 'back to the future' initiatives," said Tony Travers, director of the Greater London Group at the London School of Economics. "The council is well placed to come up with solutions in a world where local government is going to have to find much more of the money to make local economies work."