I have been much impressed by the work of the New Economic Foundation [NEF], which describes itself as "a think and can do tank". I attended their Better Banking Conference before Christmas, and have been particularly impressed with the writings of Andrew Simms and Tony Greenham, who collectively urge a focus in banking away from City institutions and into towards local banks.
This is the issue of our times, as without a better banking system our economy will struggle.
I spoke about this in the House in November during the manufacturing debate.
In my opinion, very quietly there is a banking revolution going: Metro Bank has set up from scratch, Virgin Money is now a new player, and just before Christmas the Co-operative Bank successfully took over 632 branches of Lloyds: this is welcome news. It heralds a challenge to the banking status quo on the high street.
But we need to do more.
As Tony Greenham puts it: "The highly concentrated British banking market stands out like a sore thumb internationally. Not because we have large global banks — others have those too — but because a tier of domestic banking is completely absent from Britain: local banks.
The idea that smaller local banks might provide the economic bedrock for businesses and consumers seemed rather quaint and old-fashioned during the banking bubble of the past two decades. After all, who needs local branch managers to assess loan risk with their knowledge of the applicant and the local economy, when mathematicians can manipulate spreadsheets until risk disappears? The future is in futures, don’t you know.
Since the financial crash, the merits of a vibrant system of local banks have become apparent. We need only look at, for instance, Germany, Switzerland and America. These economies not only have large global banks; they have an economically significant sector of smaller community-based and mutual banks — about 70% of the banking market in the case of Germany.
Studies of the German savings banks, a network of 430 independent but mutually supporting local institutions, show they have made modest but steady profits through both booms and recessions. The mighty Deutsche Bank, by contrast, plunged from huge profits to calamitous losses. The Swiss cantonal banks, focused exclusively on the economic health of their own regions, increased lending to small businesses after the credit crunch, the opposite of what has happened here.
That is the sort of bank that Northern Rock could and should have been, before it crashed - a bank focused on savings and loans for households and businesses in and around Newcastle. Not a Mini-Me international investment bank focused on pleasing the City down south.
Britain needs to create a local banking system, and fast, if we are to ensure businesses and customers across the country get access to sensible and stable credit and other essential banking services.
We need new banks founded on the principle of using credit to support manufacturing and start-ups over financial speculation and playing the commercial property market. Banks that are duty-bound to serve all citizens in their area and not leave the disadvantaged to the shady world of loan sharks and moneychangers. Retail banks that are not run by investment bankers."
Very shortly I am meeting Hector Sants of the FSA, with Andrew Tyrie, the Chair of the Treasury Select Committee, to discuss the creation of local banks. The likely fate of the Royal Bank of Scotland (RBS), which we all own 83%, will be key.
I would hope to see the usage of RBS into a system of locally governed banks — a local bank for every city and county. Ownership could be community or private - several individuals and County Councils are looking at setting up local banks.
They would be governed locally. Lending decisions would be made by managers who understood the economy around them better than anyone at London head office ever could. These managers could base their judgments on knowledge of people and businesses, and the local climate, without being overruled by a computer or centralised targets.
Their mission would be to recycle savings locally and to expand credit for productive loans that benefited the local area, but to do so on a sound commercial footing.
I have no doubt local banks will make a big difference.