Friday, 1 June 2012

The path to a local Bank of Northumberland gets easier

I have long campaigned for the banking system to be transferred back to its traditional community role. Slowly this is becoming a reality, as a series of incremental steps take place in Westminster, Europe and the North East. In Europe the ever worsening demise of the Greek and Spanish banks is testament to easy credit, loans without thought or consequences, and the steady flight of capital from these two countries banks. Whatever the leaders say, the voters simply do not believe that their banks in thse countries will survive. Speak to any property expert in London or a London banker and they will both tell you that it is clear that many Greeks and Spaniards are depositing their money in London property and banks.

There are two solutions emerging from the car crash that is the banking crisis.
i). Firstly, you have to wonder why the German economy is doing so well and they have no property crash or failed infrastructure "bridges to nowhere"? It is simple. 70% of all German business lending is done by way of the local community banks. In most countries the lending is done by big superbanks, which are impersonal, and dominated by a London knows best attitude. German SME lending is done by local people to local people. It is a model that we would be well advised to take note of because we can replicate it here.
ii). Secondly, both in Westminster and in the North east people are beginning to take notice. Interest in local banking has grown to such an extent that the BBC's Sunday Politics Show is focusing some time on the issue next Sunday June 10th. For my part I was pleased to get the chance to speak on this issue in the House of Commons recently. The key extract of the speech is as follows:

That is why I support wholeheartedly the competition objectives set out in new Financial Services Act, clause 5, states that there should be an emphasis on:
“the ease with which new entrants can enter the market, and…how far competition is encouraging innovation.”

I am grateful for what Hector Sants, the present chief executive of the FSA, told me in a letter dated 12 March:

"We are conscious of the balance to be struck between ensuring high standards at the gateway, and the importance of allowing innovation and appropriate levels of access for new firms.”

The letter continues:
“there has been public debate about the potential advantages of new entrants in the area of small, regional banks focused on servicing the SME sector. In such cases we will be proportionate in our approach and would invite all firms with a viable business model and appropriate levels of resources to a pre-application meeting to help guide them through the application process”.

The Bill will, I suggest and sincerely hope, make it easer to establish local banks, which can only be a good thing.

The momentum is growing: a local community bank run by local people for the investments of local people will happen in the North East, and not before time. I hope the BBC programme on Sunday week shows more on why this is such a good thing.