The 2008 banking crisis forced a major rethink about how the UK financial system worked and what might be done to improve and stabilise it for the future.
The banking paralysis that followed the crash produced a number of new ideas such as crowd funding. Another was were drawn from the past.
In Germany the Sparkessen system of small local banks, offering personal and business services is a tried and tested business model. Many customers feel this is the way forward for UK local banking especially as the main High Street Banks are retreating from their traditional town and city sites because of the high overhead cost of maintaining their networks. Over 470 branches have closed in the last twelve months. This trend is likely to continue as customers use internet banking for both personal and small business use.
The impact on SMEs is particularly challenging, at time when they are most needed to make the UK economy work and oil the wheels of recovery.
The Government is keen to see the excesses of 2008 should not be repeated and has regulated heavily against the banking industry generally whilst trying to engender a new breed of banks – a somewhat perverse situation.
In Dorset Bournemouth Borough Council is setting up a bank to service local SME and mortgage demand. Another group based in Wimborne investigated the possibility of a local bank, but drew the conclusion that the compliance work involved was both expensive and time consuming for what market research showed was only modest demand.
In Hampshire, Local First a bank based on the Sparkessen principle, has spent a year working through the Government’s tough compliance regime. It’s hoped that with another twelve months it will be operating with the help of a £5M funding commitment from Portsmouth City Council.
To be viable local banks like Local First need capital of £15M and £300M in lending to be viable – another challenge.
Currently First Local seems to be the one watch. It’s been agreed that Wessex Entrepreneurs will be kept update of developments to see, if at some future time, its proven business model can be transplanted to Dorset.
Proper banking might be making a comeback.