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There are signs that the banking crisis may be coming to an end. The old TSB has re-emerged, Lloyds may be returned wholly to the private sector. William & Glyn’s may also re-emerge with investment, from amongst others, the Church Commissioners for England.
So, if we ignore RBS, the banking sector looks like it can get back to solid day-to-day retail banking, can’t it? Well, not quite. Retail banking is now disappearing from our local communities with only local credit unions filling the gap.
Now is the time for a more diversified banking structure in the UK. However, the chances of this took a step backwards this week with the Co-operative Bank placing adverts in the national press to re-assure its customers that it will continue to be an ethical bank. This follows the discovery of a £1.5bn hole in its balance sheet and the news that the Co-op Group would lose overall control of its banking arm following a proposed financial restructuring. However, I fear we are seeing the end of the Co-operative Bank as we have known it. It has already announced plans to reduce its branch network by at least 15% by the end of next year.
Unfortunately, we’ve heard it all before. Latest figures from the Campaign for Community Banking Services, published in September, show that in the last ten years just under 2,200 bank branches have closed. Branch closures by the ‘Big 4’ have taken place at an increasing pace since 2009, with a net 647 closures to date. Some closure activity paused in 2013 for strategy reviews but indications are that further significant branch closures are now in prospect.
Does it matter that our banks are deserting local communities? Well, yes it does and for a number of good reasons:
- Successful and sustainable economic growth requires a local banking system;
- A banking service should provide not only counter services but also access to credit based on local lending decisions and to locally-based banking advice;
- Closure of bank branches can significantly reduce footfall in high streets, leading to reduced retail turnover which then has an impact on the sustainability of retail space in our towns;
- Small businesses still need access to bank counter services – otherwise they have to travel large distances to deposit cash etc.
The ‘Big 4’ are voting with their feet, driven by pressures on profitability and increased capital requirements. They are abandoning local communities. Now is the time to look to alternative models elsewhere in Europe and in the United States.
The truth is that UK banking has been driven by profit motives to provide large loans to financial institutions for quick returns, rather than putting the same money into smaller firms, which would create more sustainable economic growth. In contrast, both Germany and the US have strong locally-based banking systems, which are more likely to lend to smaller businesses. For example, Germany has a network of community Savings Banks (Sparkassen). Here in the UK we have seen the difficulties of doing something similar – Burnley Savings & Loans (‘Bank on Dave!’) as featured on Channel 4, illustrated the issues.
We need to change the banking system to ensure that we have many small, thriving local banks and banks that think locally. We need to provide the right incentives to the banking system, whether through legislation, reform of the banking sector, credit guidance or laws about data disclosure. A good one for the 2015 Manifesto?
* Selwyn Runnett is Chair of Carmarthenshire & Pembrokeshire Lib Dems
