It is not only the state that seems intent on centralising power. Capital also centralises its ownership. So Lloyds and most of what is now HSBC may have been founded in Birmingham and much of Barclays came from Liverpool but they are all now in London living in the lap of luxurious central government ‘quantitative easing’.
What about the regions?
Well the chart below from the British Bankers Association suggests that the mainstream clearing banks are doing what should reasonably be expected of them:
|Percentage of Britain’s SME Turnover
|Percentage of Britain’s Gross Value Added
|Percentage of Britain’s SME Lending
|Percentage of Britain’s SME Lending
|Yorkshire and the Humber||6%||7%||8%|
|East of England||9%||9%||8%|
Source: BIS / BBA
Things might be fine and dandy (though total applications for bank finance were 9% lower in 2016 – I couldn’t find last year’s regional figures) but anecdotal evidence suggests that loans in the regions are often difficult to come by. But even if that’s actually untrue it doesn’t matter.
Provided banks are properly set up or ‘directed’ (that is given credit guidance by the Bank of England or maybe the government, which, if not complied with, would just render those loans unenforceable) we cannot have too many banks. They are, as Ann Pettifor has said, a service as essential for the economy as sanitation is for the street.
By setting up local banks we would make a start on reinvigorating our local economies. For, just as every time I go to Sainsbury’s, a little bit of what I’ve spent gets to arrive at their head office in London’s High Holborn, so every time I borrow from HSBC, a little bit – well it’s banking, so a lot larger bit, will get to arrive at HSBC’s head office in Canary Wharf. So by dealing with large companies not from our locality, we are always ‘exporting’ our spending.
Contrast this with Germany – land of the Sparkassen (local savings banks). Key features of these Banks are that they are small, local and have to stay local, are not for profit and do not have to maximise shareholder value. After the financial crash Deutsche Bank, like our own big banks, decreased their lending. The German local banks actually increased theirs, helping their manufacturing economy to be as strong as it is. According to Steve Keen, Economics Professor at Kingston University, as a proportion it has remained at 23% of the economy over the last 25 years, yet during the same period Britain’s has declined from 25% to 11%.
A second feature of local banking is that, as they are permanently resident in their communities and staff are not promoted to bigger and better things at head office (they are already at head office!) they tend to keep the local economy diversified and can ‘connect’ local companies and increase trading opportunities. It is a small kickback against the big corporations – just as the banks themselves would provide a specifically local opposition to the big banks.
A third reason to establish local banking is to encourage economic diversity. Different local banks will be small but will still want to have diverse portfolios. We have seen in the 2008 financial crash that profits rather than diversity are far more important to the big banks. One has only to look at the basket case that is now Venezuela to realise that an over specialised economy is not a good plan. A variety of activities both locally and nationally is an obvious insurance. Britain is now considered to be a financial services ‘specialist’. It would be much safer to be a good all rounder.
Fourth, more diverse economies show reductions in income inequality. Where the economy is very diversified, and there are people who are generating money in a wide variety of activities, firms are more likely to be inclusive and redistributive.
The same MIT researchers have found that, “countries whose economic complexity increased, such as South Korea, saw reductions in income inequality, while countries whose economic complexity decreased, such as Norway, saw income inequality increase.”
And Sainsbury’s is probably worth another mention. It went generally unnoticed that when Sainsbury’s took over Argos, it was in effect a cheaper purchase for them than it would have been for others because Argos had a loan/card business and Sainsbury’s is a bank. That loan and card business that came with their purchase, became for Sainsbury’s a new income stream and thus an asset for their bank.
Now I’m not expert but could there be an opportunity to create some local banks from a credit union base? Some might mourn any diminution of credit unions – whilst I’d be delighted to see the arrival of local banks (although as the Bristol pound has now merged with the local credit union, if Bristol council creates pounds for spending where it would not otherwise have had the resources to spend sterling, it too is creating money).
Local banks would be entitled to the same government guarantees as the PLC banks and I would suggest that local authorities should be helping in their formation. In any case I would see local authorities as big customers of their local bank and those local authorities would be able to partly decouple themselves from the controlling purse strings of Whitehall, who would no longer be able to, for example, direct local housing budgets or infrastructure schemes from afar. Local businesses meanwhile, would have an additional source of finance that would be likely to be more competitive. Money would be created locally, by the locality and for the locality. Progress and even success would be home-made. And that looks like a proper definition of taking back control.
So what are we waiting for? With the newly created Hampshire Community Bank Professor Richard Werner, Professor of Banking at Southampton University is almost there. If we locals want meaningful independence he needs to be widely followed!