Almost every week brings news of the closure of bank branches in rural areas. As an Assembly Member in Wales representing a large rural region, I know at first hand the real effects of bank closures on local communities and businesses. Latest figures from the Campaign for Community Banking Services, published in September, show that in the last ten years just under 2,000 bank branches have closed. There are now 900 communities that have only one bank branch and 1,200 communities with no bank branch at all. The traditional ‘Big 4’ banks closed 178 branches in 2011. Estimates suggest a similar rate of closures for 2012.
So, why does it matter? Surely these days everyone is using internet banking which is open 24/7 and is much more convenient? Well, it matters for a number of good reasons:
• Successful and sustainable economic growth in rural areas requires a local banking system;
• Closure of bank branches can significantly reduce footfall in high streets, leading to reduced retail turnover which then has an impact on the sustainability of rural small towns;
• Some rural areas simply cannot get access to high speed broadband – this means some people can no longer access banking services except by telephone;
• Older people sometimes cannot or do not want to use internet banking;
• Rural businesses still need access to bank counter services – otherwise they have to travel large distances to deposit cash etc.
A banking service should provide not only counter services but also access to credit based on local lending decisions and to locally-based banking advice. The ‘Big 4’ are voting with their feet, driven by pressures on profitability, increased capital requirements and the necessary split of retail from investment banking.
But we cannot and must not allow this to happen. We need to think through how the local Post Office network can be used more effectively to provide these services, whether branch networks can be shared, and how both consumer and business credit unions can be developed in rural areas. We also need to look to alternative models elsewhere in Europe and in the United States.
The truth is that UK banking has been driven by profit motives to provide large loans to financial institutions for quick returns, rather than putting the same money into smaller firms, which would create more sustainable economic growth. In contrast, both Germany and the US have strong locally-based banking systems, which are more likely to lend to smaller businesses. Germany has a network of 1,700 Volksbanken, small co-operative banks which operate locally. Likewise, in the USA an example is the Bank of North Dakota, a public development bank that was originally founded by farmers concerned at their difficulty in obtaining loans at affordable rates.
We need to change the banking system to ensure that we have many small, thriving local banks and banks that think locally. We need to provide the right incentives to the banking system, whether through legislation, reform of the banking sector, credit guidance or laws about data disclosure. We also need to give an incentive to think locally.
We have the powers because, as taxpayers, we own some of the big banks and we should be able to shape how they operate. There should also be support for existing smaller banks, for the creation of new community and regional banks and for credit unions. Banking reform is an urgent priority for all of us, but especially for rural communities.
* William Powell is Deputy Leader of the Welsh Liberal Democrats on Powys County Council and speaks for his party on the Environment, Farming and Rural Affairs. He was Welsh Liberal Democrat AM for Mid and West Wales in the Fourth Assembly and is a member of the Welsh Government EU Advisory Group