Solutions

Expand the community and co-operative banking sector

Expand the community and co-operative banking sector

Stakeholder banks can be mandated to serve the public interest or local communities rather than simply to maximise returns.

In recent years there have been initiatives to set up new local and co-operative banks, but there are significant barriers to getting such banks off the ground, and progress to date has been slow. The credit union and community development finance sector also remains relatively marginal and has yet to find ways to scale up sustainably. Options include:

  • Helping to capitalise new stakeholder banks, for example via a National Investment Bank, investment by local authorities, or perhaps a National Infrastructure Fund. Building a sufficient capital base is one of the main hurdles facing those trying to set up new banks, and public bodies have unique potential to act as first movers’, pledging initial capital which can then give confidence to other potential investors.

  • Establishing a new Post Bank, owned by the Post Office and providing a full range of banking services in every community, as has been proposed by the Communication Workers Union. Post Banks have been successful at providing banking services to small firms and financially excluded communities in many other countries, most notably in France with La Banque Postale and in Italy with Poste Italiane.

  • Reforming the regulatory process to make it easier for such banks to get a banking license – for example, by establishing a new Diversity Hub’ within the Financial Conduct Authority (FCA) specifically geared towards encouraging more diverse entrants to the banking system and helping innovators to navigate the process. The FCA already has programmes to support new entrants, but it does this through a pure competition lens and without regard to the desirability of cultivating new ownership and business models.

  • Giving the Bank of England, Prudential Regulation Authority and FCA a mandate to promote diversity in the banking system, and reforming the regulatory framework to level the playing field for stakeholder banks. For example, capital requirements are highly complex and calibrated to the business models of big shareholder banks. This can disadvantage small stakeholder banks, whether because small local banks are regarded by regulators as more risky, because the type of loans they make may require more capital to be held against them, or simply because of the sheer burden of compliance.

Policy in practice

Projects that demonstrate the benefits or may be helped by polices like this.

  • People’s Bank
    Planned regional, mutually-owned bank aims to boost the economy of the north-east of England.
  • Guardians of the Arches
    Railway arch-based small businesses fight for affordable rents.
  • Robert Owen Community Banking
    Ethical fund provides finance for small businesses, home improvements and community energy projects.
  • Grays Riverside
    Thurrock network is strengthening community ties and building local wealth.
  • North West Mutual
    Community bank will help local businesses and individuals neglected by mainstream banks.
  • Kitty’s Launderette
    Not-for-profit launderette offers a cheap place to wash and dry clothes and a warm, welcoming space for the community.
  • Portpatrick Harbour
    Community shares helped a struggling village revive its harbour.
  • Avon Mutual
    Avon Mutual is one of a new breed of community-owned banks that aim to put people and the planet first.
  • Save Latin Village
    Small business owners are fighting plans to develop their north London home.
  • Space4
    Space4 is a co-working space for social enterprises and worker co-operatives in the digital tech sector.