Three north west councils are in discussions about setting up a community bank which Liverpool City Council mayor Joe Anderson claims will be on a scale never attempted before in the public sector.
Mr Anderson told LGC he hopes the bank, which would be set up together with Wirral MBC and Preston City Council, would be licensed by the Bank of England, and would operate on a similar model to that of traditional building societies to “support families and to get people on the housing ladder”.
The councils intend to fund the bank by borrowing from the public works loan board.
Mr Anderson said: “We are the first council to do this, certainly on this scale that we intend to do it… We will be able to remove the need for deposits and buy mortgages for people who can’t provide a deposit, because the banks aren’t doing it,” Mr Anderson told LGC.
There are a couple of examples of other councils are also now involved in community bank ventures. Warrington BC has a 33% share in the Redwood Bank, which was set up by two local business people to provide finance for businesses in the area, while earlier this year, the South Tees Community Bank, opened branches in Middlesbrough and Redcar. This was funded by £50,000 from Middlesbrough Council and £465,000 from the SSI taskforce, which was set up to boost the Tees Valley economy following the closure of the SSI steelworks in 2015. The bank aims to help local people to save and borrow without falling prey to high-interest ‘payday lenders’ and loan sharks,
Preston leader Matthew Brown (Lab) said the north west councils were working with the Community Savings Banking Association, the Royal Society for the Arts and others to promote the concept of what he calls new “regional ‘challenger’ banks” in the north west. Cllr Preston claims this will make more investment capital available to local businesses, and combat the withdrawal of banking services from areas of the city.
“We still have significant inequality in the north west and often our large banks are much happier lending to each other than lending to people who need it and, importantly, to small businesses,” he said. “I want Preston to lead the charge in setting up a co-operative owned bank which would help to serve the north west - it would be for people in Lancashire, Merseyside and Cumbria. People want to see something different and a fresh approach.
In recent years Preston has become known for the ‘Preston Model’ which means the council aims to spend as much of its budget locally as possible and encourage other local public sector bodies and businesses to do the same.
Cllr Brown added: “We need a bank that cares for its communities as well as needing to make money. The current system does not provide that and we want to give people a credible alternative.”
Cllr Brown says there also needs to be a physical presence for the banks – “whether that is reopening branches that have closed down, or in new locations”.
Joanne Pitt, local government policy manager at Chartered Institute of Public Finance & Accountancy, warned that councils should be referring to Cipfa’s prudential code to ensure they do not take on an inappropriate amount of risk when exercising their investment powers.
“While the avoidance of all risk is neither appropriate nor possible, organisations must acknowledge and manage risks as well as identify reward to ensure financial sustainability,” she said.