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 reality is that Hampshire, for example, has done what I am talking about and set up the Hampshire bank, or Hampshire Trust. It is backed by the local chamber of commerce and by local authorities. It is regulated, so it is possible to have a county bank that is regulated, but on a lighter-touch basis—I use that phrase again—than the larger banks such as Barclays or HSBC. Moreover, if we broke up RBS, which I will come on to discuss, the individual shareholders would have a say in a local county bank.

How do we create local banks? First, one must address the barriers to entry, which are considerable. Metro Bank has recently been established in London and the south-east, but only at huge cost and only after overcoming many hurdles. The example of the Hampshire bank shows that county banks can be created. I see no reason why we cannot do the same in Northumberland, or in the wider north-east region, and set up “The Bank of Northumberland” or “The Bank of the North-East”.

However, the truth is that a banking licence is notoriously difficult and costly to obtain. To try to remedy that situation, along with my hon. Friend Mr Tyrie, who is the Chairman of the Treasury Committee, I met the chairman of the Financial Services Authority, Hector Sants, at the beginning of March. My hon. Friend and I sat down and tried to explain the problems to Mr Sants, and I am pleased to say that under this Government the FSA is considering trying to reduce the barriers to entry for smaller local banks.

On 12 March, the FSA’s chief executive wrote to me:

“We are conscious of the balance to be struck between ensuring high standards at the gateway, and the importance of allowing innovation and appropriate levels of access for new firms.”

He added:

“there has been public debate about the potential advantages of new entrants in the area of small, regional banks focused on servicing the SME sector. In such cases we will be proportionate in our approach and would invite all firms with a viable business model and appropriate levels of resources to a pre-application meeting to help guide them through the application process”.

In those circumstances, and with the background of a banking crisis, we need to look at the elephant in the room that is the Royal Bank of Scotland. The Government are understandably impatient to sell the 83%-nationalised bank, but the health of the public finances ultimately depends on the health of the economy, which itself rests on the stability and usefulness of the banks.

The taxpayer bail-out and the subsequent problems of RBS are well documented, and it now seems clear that the chances of the Government selling RBS as it is, and making a profit, or anything like one, are but a dim flicker at the end of a long tunnel. What the Government did with Northern Rock was undoubtedly the best option and the only real one, but RBS is different. I see RBS as an opportunity—as the Americans often say, “Don’t waste a good crisis.” We have a unique opportunity to seize the moment, and to ensure that RBS is managed for the benefit of the taxpayers, who own 83% of it, thereby transforming the banking sector. I suggest that we do not sell RBS as it is, but break it up, decentralise the branch management and use it to form the basis of devolved local community banks—imagine a local bank for every city or county—linked, where possible, with the local authorities and chambers of commerce.