Community Banks

Part of BBC – in Westminster Hall at 12:19 pm on 10th July 2012.

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Photo of Guy Opperman Guy Opperman Conservative, Hexham 12:19 pm, 10th July 2012

The case for local community banking and the break-up of the Royal Bank of Scotland to create a series of local banks has never been stronger. Since the global financial crash, the merits of a vibrant system of local banks have become apparent; it is the issue of our time. We need to look at finding new ways to unlock the finance that households and small businesses need. We need new local banks that will promote competition, reinvigorate community lending, improve the finances of small and medium-sized enterprises, and encourage local saving. They would work on the principle of using local credit to support manufacturing and start-ups, and they would not leave the disadvantaged at the mercy of loan sharks and money changers.

Local banking works. We should bear it in mind that 70% of German lending to SMEs is via local banks. And we wonder why the German economy is doing better than ours. The experience of other countries that have a thriving local banking sector—countries such as Germany, the US and Switzerland—has demonstrated that smaller, locally focused institutions are the ones that provide economic resilience. Studies of the humble German savings banks—or Sparkassen, as they are called—which form a network of 430 independent but mutually supporting local institutions, show that they have made modest but steady profits through both boom and recession. By comparison, the mighty Deutsche bank has plunged from huge profits to calamitous losses.

In this country, we have a missing tier of banking. Let us consider the period between December 2007 and December 2011, which saw a sharp decrease in lending by the large commercial banks in Europe. In that period in Germany, large commercial bank lending fell by 18%; in Switzerland, it fell by 34%; and in the UK, it fell by 17%. During the same period, however, lending by local savings banks rose; the German savings banks saw lending rise by 18% and the Swiss cantonal banks saw lending rise by 22%. But in the same period the UK saw neither a rise nor a fall in lending.