The short answer is probably not but it could be helpful none the less.
Recent headlines give the impression that the UK’ banking sector is beset by both a failure to provide customer satisfaction and an inability to provide that sort of funding that local businesses and borrowers really need. Though a partial picture, I think it’s reflective of extreme national cynicism regarding the banking sector, with a majority of people not trusting big banks with their cash. If a new approach is required to re-establish trust, what is the best way to reconnect banks with the local communities they serve?
Lessons from our neighbours map out a range of distinctly localist options. Notably there seems an absence of the type of regional state-supported bank known as Sparkasse in Germany or Sparebank in Norway. Some have lionised the Sparkasse as the antithesis of the sort of high-octane banking that did so much damage to the stability of UK credit. I can understand why.
Tied to particular areas or in some cases particular enterprises, Sparkasse are the first choice of banking for millions of middle income Germans. Strong connections to local communities and enterprises combined with perhaps a greater discretionary flexibility in lending based upon local insight into needs and capacity, mean that in contrast to the UK, SMEs and hard pressed communities have not been as starved of credit. Equally, through many of the boom years Sparkasse were criticised as hidebound and provincial due to their lack of aggressive lending practices, this unadventurous approach was in marked contrast to Germany’s over exposed investment banks in the 2008 crash. Doughy and respectable stability perhaps paid dividends.
Sparkasse need to be supported by some form of funding agency to be viable and so would any attempt to emulate them; no one would seriously argue for more under-capitalised banks as a viable option. This funding agency would not necessarily have to be underwritten by public funds alone however. Peer-to-peer lenders and new regional initiatives are part of an evolving ecology of banking in the UK. With the right incentives, these new players could be perhaps persuaded to fill the niches serviced by the localist banks of other states.
This would not be an unprecedented concept in annals of UK’s banking – the Trustee Saving Banks had great success with slightly different spin until their eventual amalgamation and subsequent absorption into Lloyds. Perhaps the Co-op & Lloyd’s Project Verde deal, wobbles asides, is an opportunity to rekindle this move toward saving banks with real local roots.
If you like to discuss the future of UK local banking we have a lunch time discussion for public and private stakeholders scheduled for the 8th November, please contact email@example.com for more details.