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.

  • Save Latin Village
    Small business owners are fighting plans to develop their north London home.
  • South West Mutual
    South West Mutual is a member-owned, high-street bank dedicated to residents and small businesses.
  • Avon Mutual
    Avon Mutual is one of a new breed of community-owned banks that aim to put people and the planet first.
  • Robert Owen Community Banking
    Ethical fund provides finance for small businesses, home improvements and community energy projects.
  • Impact Hub
    Impact Hub is a community centre and co-working space which aims to build a more equal and just city.
  • East End Trades Guild
    Alliance of 300 small businesses and independent traders takes on landlords and big business.
  • North West Mutual
    Community bank will help local businesses and individuals neglected by mainstream banks.
  • Homebaked
    Residents saved their iconic neighbourhood bakery and transformed it into a thriving community run-business.
  • Rock House
    A community-rooted development company transformed a run-down office block into a creative, collaborative, mixed-use hub.
  • B4RN: Broadband for the Rural North
    Not-for-profit community benefit society provides one of the world's fastest broadband services.