Opinion: Underpinning local enterprise through the banking system

Despite a last minute attempt to scrap criticisms of the big banks, the Lib Dems are now committed to a powerful programme to create a diverse local lending infrastructure in the UK.

And most important of all, thanks to the Rebanking the UK debate yesterday, the Lib Dems are now clear about how this great diversification is going to be achieved.

The big banks are going to pay for and mentor a new infrastructure of local banks, which will be geared up – and with the expertise they need – to lend money to a new UK mittelstand, the UK small and medium-sized banking sector.

Redcar MP Ian Swales made an excellent speech setting out the case for diverse local banks – my only nervousness about it is that Liberals have never found economics terribly interesting. They may therefore miss the significance of this.

Just as Ed Miliband is rowing away from his commitment to local banks, the Lib Dems have set out a clearer plan and a proposed way that it can be achieved.

The traditional Liberal blindness about economics does require some overcoming, and – if they have any sense – the party will use this as the centrepiece of their economic strategy next year. It proposes a way to turbocharge local enterprise.

Yes, it depends on the big banks. But they will do it, willingly and without legislation.

They will do it and they will love it. Because it will make them heroes again. Because it will let them end, once and for all, the argument about whether they’re lending enough to small businesses.

And because they will be putting in place the means by which we can underpin local enterprise and local independence

For me, there is a parallel with the debate about ISIS. If you want to do a job properly, you can’t always rely on virtual systems or drones, operated – in this case – by algorithms from Wall Street or the City.

What we need to build a new enterprise culture, where it is needed most, is banks with boots on the ground.

* David Boyle is a former Lib Dem parliamentary candidate and the author of Tickbox (Little, Brown). You can buy the book from Hive or Amazon.

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6 Comments

  • Eddie Sammon 9th Oct '14 - 6:29pm

    Hi David, do you have a link to detailed proposals on this? With the internet it is not a given that local banks are going to be the way forward. We need bank managers to meet the local businesses, but local businesses don’t necessarily need local money.

    Regards

    However, I do like your analogy of banks with “boots on the ground”. 🙂

  • Tsar Nicolas 9th Oct '14 - 6:43pm

    @David Boyle

    “No, I agree, but sometimes local deposits are the only local assets, and they can;t be used unless there are institutions capable of investing them.”

    But as I know you are aware, banks do not lend out money that they have as deposits – they lend money that they don’t have into existence.

    Are you suggesting that the new local banks will be like the old mutual building societies, or maybe even that fractional reserve banking should be abolished?

  • Eddie Sammon 9th Oct '14 - 7:16pm

    Hi David, I’ve had a quick look at that document, so is the plan for a combination of public and private investment (from the banks) to set up the new local banks?

    One thing I will say is years ago when I felt I was going to the top of finance I had a financial advice licence, was looking into investment management and then seen a possible next step was deposit taking, which would be setting up a small bank. The problem is, besides I never got around to the second stage of the plan, is that the deposit taking licence required £5 million pounds. This seemed a bit high for an entry requirement. No wonder peer to peer lending is becoming more common instead…

  • David

    Is there a real commitment from the Leadership on this?

    Watching onTV, I found the “Rebanking the UK debate” yesterday, both interesting and informative.

    I could not gauge the leadership line on this. Clegg is one of those people who seems to have little understanding of, or interest in economics on any level.

  • David Evershed 9th Oct '14 - 11:15pm

    50% of small businesses do not borrow from banks because they don’t need to or don’t wish to. These 50% are depositors with banks and don’t want their cash to be lent unwisely to unsound businesses or at unjustifiably low interest rates which might damage the bank which runs their account.

    Where small and medium sized businesses are short of finance it is generally equity finance which they are missing. It is not appropriate for deposit taking banks to be investing depositors money in equity shares. Equity investing is the role of investment banks, what Vince Cable calls casino banking. Small business owners are reluctant to let outsiders take significant equity shareholdings in their business (despite what you see on Dragons Den) and medium sized companies often lack managers with the dedication, commitment and skills to develop the business and justify investors investing equity.

    Having a local bank rather than a national or international bank does not solve any of the above issues.

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