It is a pleasure to follow John Smith, who is clearly proving an effective advocate for his part of Wales. I would like to focus on the economic crisis, which was at the heart of many of the speeches that we have heard. I particularly want to consider the role of banking and the effect of the crisis on Wales. In some ways, because we do not have an indigenous banking sector to speak of, we have been shielded from the direct effects, but of course we are dealing with the indirect repercussions of the banking crisis.
As I see it, we face three categories of problems, the first of which is access to affordable mortgages. It particularly affects first-time buyers, who are benefiting from a fall in prices but are not able to get a mortgage because banks and building societies now often ask for loan-to-value ratio of 75 per cent. A 25 or 30 per cent. deposit is nigh-on impossible for first-time buyers. The second category of problem is the lack of normal credit facilities for small and medium-sized businesses; we have heard about that from a number of hon. Members. The third category is more long term. I foresee a possible long-term negative effect on public confidence in saving per se. That will affect pensions—returns on equity investment are being hit—and financial inclusion. People look at what is happening in the banking system and are clearly suffering anxiety about the safety of their savings and investments. They are also experiencing a tightening of credit as a result of the crisis.
Those trends are particularly acute in the UK because of the absence of local and publicly owned savings banks, which are a typical element of the banking system in many European countries. The UK has a highly concentrated banking sector, in which there are a small number of very large institutions—institutions that, as we have seen, have unfortunately engaged in highly risky and slightly exotic investment activities over the past few years.
The banking sector is also concentrated geographically, in the sense that it is essentially focused on London and, to a lesser extent, Scotland. There has been a withdrawal of regional banking facilities, so the traditional role of the banking manager—even the business banking manager—who had a personal relationship with their customers has disappeared to some extent. The linkage between banks and the communities and businesses that they serve has become weaker in recent years.
The crisis gives us an opportunity to shift the balance again. There is a need to have local and, I would say, publicly owned banking institutions as part of the mix. In particular, there is a need for banks that focus more narrowly on traditional banking and do not get involved in some of the investment banking activities that were an important contributor to the current crisis. In Wales, which lacks a local banking institution, there is an opportunity to create indigenous financial institutions. The Welsh Assembly Government, through their activity with the economic summit, are looking at increasing their ability to impact positively on the economy in Wales. Having an indigenous banking institution that is directly owned by the public sector, or over which the public sector has some leverage, is an important component of a medium-term economic strategy in Wales. As Geraint Talfan Davies wrote recently in the Western Mail, in some ways—almost perversely—this is quite a good time to consider launching a new banking institution. A bank that does not have toxic assets on its balance sheet because it is a new institution could be a favourable proposition.
There are models out there. The Sparkassen, for instance, are local savings banks in Germany, rooted in local communities. Some services are provided by the Landesbanken, which operate as an umbrella institution owned at Land level by the regional governments. They have been very successful: about half the retail sector in Germany involves the Sparkassen. They have been unaffected by the financial crisis. Indeed, many have increased their lending because they are seen as a safe bet—a credit-worthy, trusted institution.
Many European countries have a mixed economy in banking. In Germany, the private sector represents only 12 per cent. of the overall banking sector. Even Switzerland, which is famous for private institutions which may or may not be involved in nefarious tax-evading activities, has cantonal banks which are owned by local government, and which deal with 30 per cent. of the banking business of ordinary individuals. That model offers us a way forward in Wales.
According to a recent Financial Times survey, 81 per cent. of people in the United Kingdom support the idea of the locally owned, publicly owned savings bank as an alternative to what has been on offer. We used to have that in the UK, of course: we had the Post Office Savings Bank, which became National Savings, and we still have the remnants in National Savings and Investment. We also had Girobank, the "people's bank", which was launched in the late 1960s and was very successful. It was the first bank in the world to launch telephone banking, and was also instrumental in launching the Link ATM network. Unfortunately it was privatised, perhaps because it was too successful.
There is still a residual element of the municipal bank movement. There are six municipal banks left in Scotland, and Birmingham city council—Birmingham was the site of the first municipal bank—says that it is considering creating a new one by means of a private Bill with which the House would deal later in the year. Ceredigion is considering the possibility of creating Wales's first- ever municipal bank in order to provide credit for local businesses.
Local authorities have the ability to offer mortgages. Birmingham city council is considering providing a top-up scheme in partnership with building societies. If the building societies were willing to lend the first 75 per cent. to first-time buyers, the council would provide perhaps 15 per cent. to make the purchase affordable. The Welsh Local Government Association is conducting research, as are the Welsh Assembly Government, to establish whether an umbrella product could be created through local authorities, possibly in conjunction with a new institution. I hope that it will be possible for the Westminster and Welsh Assembly Governments to act in partnership, but clearly the Treasury would have some decisions to make.
Copy and paste this code on your website