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My Lords, once upon a time not so long ago, small local banks and building societies—some of them mutual, some of them not—served our local communities. They knew their local communities, the individuals and the businesses, and were themselves tied to the economic health of that community, thriving only when the community itself thrived. It was not utopia—I think that most of us in this House would not like a loan decision to be made by Captain Mainwaring—but those banks and building societies played an incredibly important role in making sure that we had a sector of banking that supported both the real economy and local development and regeneration. We have lost that layer of banking. The United States and Germany have retained it. During the last, very severe recession, it was notable that that layer of banking provided ongoing funding to individuals but, even more importantly, to small businesses, and a mechanism for the Government to support those small businesses. It also contributed to financial stability. Here in the UK our Government had to go through the most extraordinary contortions to funnel funds to small business.
We need to restore that level of banking. Banking is changing dramatically. Online banking and FinTech are largely disintermediating the big banking sector, which the main high street banks thought belonged to them. Online is very successful. I am delighted to hear that in the third quarter of last year Funding Circle became the third largest lender to small businesses in the UK. That is phenomenal for a company which did not exist five years ago. Although that successful change is coming, there is new competition. For many small businesses, online is not necessarily the answer. They need that partnership which was on offer from a community bank, community building society or community mutual, which could help them through the early stages of development and with many of their difficulties. Very few of the online providers take on that role. I can think only of ThinCats, and it is very small. Therefore, I can see no way in which we can restore that missing layer of banking without an effort by both the Government and the regulator. That is the purpose of this amendment.
The Government often talk about diversity, and I very much support Amendment 15, tabled by the noble Lord, Lord Naseby, which is in this group. But when the Government talk about diversity, they focus on making sure that the regulator treats diverse entities appropriately, which is entirely right. It should not attempt to fill the gaps and deal with the current market failure. I have named one significant area: that of local and community banks.
I am not going to press this amendment today, but I want to make sure once again that this matter enters the conversation, because it is a neglected area. In every conversation I have with government, the Treasury or the regulator, diversity is merely a fashion of regulating particular kinds of business. That does not recognise the significance of that gap and market failure. For that reason, I beg to move.