Liverpool is working with Wirral and Preston Councils to move forward with a plan to create an ethical, council-led, regional community bank.
It would help grow small and medium-sized businesses – and help low earners on to the housing ladder.
Tomorrow morning, the council’s Cabinet will consider a report which recommends due diligence begins on the establishment of the landmark new financial organisation.
If the business case for the bank – which would serve Cumbria, Lancashire and Merseyside – is proven, an expert will be recruited to lead it and recruit board members.
It is intended that the bank will have a social mission focused on:
· Serving the everyday financial needs of ordinary people with ordinary means, local community groups and small and medium sized companies
· Help redress regional inequalities, make financial inclusion the norm, build and store community wealth
· Significantly increase the proportion of bank lending going to the ‘real’ (non-financialised) economy and SME’s instead of the financial economy
· Build regional economic resilience
· Bring about a renaissance of customer service, relationship banking and mutual trust.
The council has cited research from Bristol University, which shows individuals on low incomes pay almost £500 a year in additional costs due to being prevented from accessing preferential deals from banks due to their income levels and credit history.
This includes lack of access to a full current account, a necessity to use high-cost credit, living in perpetual overdraft debt and renting rather than buying household appliances.
The Community Savings Bank Association, which is registered with the Financial Conduct Authority, is seeking to develop 19 regional community banking models across the UK, with London and the South West already in the pipeline and Wales and some other regions following close behind.
The Bank would need to approach potential social investors and regional anchor institutions, that share the social and economic ethos of the mutual, to invest around £20 million of the share capital required.
It is intended to hold a potential investor day together with Wirral and Preston councils, once the appointment of the banking expert has been made.
Local banks supporting local businesses have been successful in Germany with around 70% of banking carried out by some 1,700 local co-operative banks.
The due diligence exercise will look at the potential financial return and the risks associated with the model but the initial case put to the council would suggest returns of annual dividends of 7.5% could be achieved by year five, with future increases related to share of profits.
Mayor of Liverpool Joe Anderson said: “The banking system is failing the poorest people in our city and the public sector has a duty to step in and address this inequality which is hurting those who can afford it least.
“We know that some individuals and businesses are excluded from obtaining a basic level of service and that those that can have been impacted by branch closures and charges for using ATMs.
“It is vital people already hit by welfare reforms have the freedom to pay for goods and services however they choose, and access to cash must be maintained for those that need it.
“There is a real opportunity here to provide mortgages for people who would not normally be able to get on the housing ladder, and create a market which provides opportunities for everyone.”
Wirral Council’s cabinet member for Finance and Resources, Cllr Janette Williamson, said: “This is a direct way we as local authorities can tackle major issues facing our communities – from financial exclusion and allowing the least well-off to access loans and mortgages, to helping our small cash-based businesses needing somewhere to deposit their takings – protecting and even boosting the local economy.
“We want to step in to provide the service the high street banks are failing to provide as they focus on their most valuable customers and shut branches where many of our residents actually need them most. This will be an ethical bank and will be a presence in our communities.
“Not having a bank account means the least well off face higher charges, are unable to access savings for utilities such as those available through paying by direct debit, and really brings home the phrase ‘it costs more to be poor’.”
Leader of Preston City Council, Councillor Matthew Brown said: “I believe the current system we have for banking and finance in this country, is broken. There is a vast inequality and we currently have banks which are much happier lending to each other, than they are in lending to people who need it and importantly to small businesses.
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“This community bank would enable the financially excluded – people and businesses who find it difficult to borrow money – to get access to banking services. It would help to serve the North West plus generate and retain wealth within the Preston and wider economy. Unlike our European counterparts we have never had regional cooperative banks in the U.K. and this will be one of the first.
“We need a bank that cares for its communities. The current system does not do this and we want to give people a credible alternative.”
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