Community Banks

Chris White Excerpts

Tuesday 10th July 2012 Westminster Hall

[Guy Opperman]

I completely agree with my hon. Friend and I entirely applaud the Government’s approach—by way of the Vickers report—to addressing the problems with the larger banks. Everyone can see that there is a fundamental problem with large banks and their failure to lend. The fact is that they are almost operating as a monopoly; the largest six banks run the show completely.

The other end of the telescope and the other end of the problem is the lack of local banking. My hon. Friend talks about a two-tier banking system and I agree that, instead of having a single monolithic and almost monopolistic banking structure in which only the five or six big banks lend money, we need the larger banks—of course—but we also need the smaller banks operating at a local level.

Quite frankly, we have lacked that system in this country. Ever since the 1930s, approximately, the banks and building societies in the UK have become ever larger as some of them have been swallowed up by their neighbours and by their more predatory rivals. Consequently, we have gone from having a large variety of banks and building societies to having fewer and fewer banks and other organisations working in the banking community. Of course, that has the effect of reducing competition, reducing the ability for a new entrant to gain access to the market and reducing the ability of businesses to gain access to credit.

I must stress at the outset of my speech that the present crisis in banking and in bank lending is not in any way the fault of local branch staff. I assure the House that those staff are just as frustrated as I am at their inability to run accounts as they used to in the old days. I come to this particular debate with a background in business and with two years of experience as a constituency MP in Northumberland, where I have repeatedly seen decisions on lending being made by a Hexham bank manager, or another local Northumberland bank manager. Those decisions then become part of the responsibility of the credit risk team whenever there is any difficulty with the account.

If an individual SME has a problem with its account, such as a bad debt or a problem with cash flow, it is almost impossible for it to go back to the same manager and argue the case that it is a viable, proper business going forward. That is because the decision-making process has been taken away from the individual local bank manager in Hexham, Ponteland or wherever. What happens now is that the decision is not even taken in Newcastle or anywhere else in the north-east but by a credit risk team that is many miles away. I have attempted to go to those credit risk teams to make a case, but of course it is almost impossible to do so. That system must change. Again, I make it clear that what I am saying today is not a criticism of local bank staff who are working throughout the country. It is a criticism of the board members in London, who seem to have totally forgotten their fundamental role.

I was interested to see that the Leader of the Opposition has commented on banking in the last few days. Like the Church, we always welcome new converts, given the past record. However, the necessary reform of the banks is being left to this Government, as we bring the banks to heel with the Vickers report, clear up the LIBOR mess and implement a much stronger system than the light-touch regulation that we saw before.

Change will not happen without competition. Yesterday the Leader of the Opposition was extolling the need to create more competition for our banks. However, on 23 April in the Financial Services Bill Committee the Opposition voted to prevent competition in banking. I was present for that debate, which saw the Opposition introduce amendment 28, which would have deleted clause 5 of the Bill, thereby deleting the requirement for enhanced competition. So I must ask the question: how can one be in favour of local banks while stopping competition?

The Leader of the Opposition is also out of touch if he thinks that the answer to this banking crisis is to force banks to close some of their high street branches. That is hardly what the voters in my part of Northumberland are crying out for; that much is certain. Residents in Haydon Bridge and Haltwhistle who are losing their local bank branches will tell the Leader of the Opposition that the problem with the banking sector was casino banking and greed, and not—as we heard from Labour this week—having too many local branches. My constituents want to see local branches providing a local service.

[Chris White (Warwick and Leamington) (Con)]

I congratulate my hon. Friend on securing this debate. I would like to know his thoughts on how our local communities can hold these banks to account. Although having local community banks is an excellent idea, if we create smaller banks out of RBS how can we ensure that the local communities will have control over those banks’ priorities? In my constituency, industries such as the green energy industry and the video games industry have big potential for growth. How can local communities ensure that local banks are given the mandate to tailor themselves to local business needs?

[Guy Opperman]

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 the Member for Chichester (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.