Town & Country Planning, April 2010
I am writing in the middle of the general election campaign, and so far – at least – it is a case, as Sherlock Holmes might have put it, of the dog that didn’t bark.
We have just plunged the nation into recession, and the world financial system wobbled just 18 months ago. We all know that the future of banking is critical to the future of the economy. Yet for some reason, it doesn’t make the grade as an election issue.
Vince Cable certainly mentions the banks, but even he is relatively tame when it comes to solutions. Yes, the government should be using its holding in the banks to force them to lend more locally, but there are good reasons why this doesn’t happen.
For one thing, the banks are also being told by the government to use all these deposits and bail-outs to strengthen their reserves. For another thing, they are no longer really geared up to lend locally. Our mega-banks are structured so that their attention is on the speculative market. Local lending is done by computer programme and can make no use of local knowledge. It is a dull checklist business which makes no exceptions. Ugh.
The main determinant of whether our local economies recover – the real ones, that is – is a major revamp for the banks, preferably splitting them up into their constituent parts to provide a bit of lively competition, yet the political commentators are almost as silent as Cameron (‘Mr’ Cameron, I should call him; he may be prime minister by the time this column is published).
Contrast this with the situation in the USA where the backlash against big banks is gathering pace, so much so that the state of New Mexico has voted to take all their money out of big banks and put it into local ones.
New Mexico’s House of Representatives voted unanimously to pass a bill that allows the state to move $2-5 billion of state funds to credit unions and small banks, but is still stuck in the state senate.
If it passes – and the governor says he supports the idea – then it will make that money available for investment in local enterprise, a huge boost to the local economy.
One of the Democratic candidates for governor in Oregon is proposing the same thing.
The New Mexico law follows the campaign by the Huffington Post, Arianna Huffington and Rob Johnson – now head of George Soros’ new think-tank – to ‘Move Your Money’ away from the big banks.
But then, the USA at least still has small local banks. In fact, about half the money in the USA is lodged with them, and cities and other local government agencies are increasingly concerned that money should be kept locally.
Los Angeles has ordered city officials to try to renegotiate an interest-rate swap that is costing the city about $19 million a year. Under the motion, firms that won’t agree would be banned from doing new business with Los Angeles.
The state of Maryland is now debating a draft law which would allow state-chartered banks to win the state’s business if their bid came within ten per cent of those from larger banks.
The legislators in the USA are moving faster than local government in the UK, partly because they have some choice about where to lodge their money, but many are also considering their past as bankers. The Birmingham Municipal Savings Bank, founded by Neville Chamberlain in 1919, eventually had 66 branches across the city.
It is now part of the state-owned Lloyds Group but it has long since disappeared, and needs to be released from the belly of the monster.
Meanwhile, American legislators are looking admiringly at the 90-year-old Bank of North Dakota, the only one of its kind in the country, with $3.9 billion in assets, and is owned – very profitably – by the state of North Dakota. They call it a ‘socialist’ bank, but it is actually nothing of the kind. It is just a municipal one.
So why is it that we can’t talk about these things over here. American local economies are sustained by a thousand bank branches per million people. German local economies have about 500 branches per million. We have to make do with just under 200.
It is another example where the extreme centralisation of the UK, its government and its economy, put us at a disadvantage.
I can’t think of a more important issue. This is the critical economic side of the whole localism debate. It is a pity that we are so miserably conservative about banking in this country – unlike the USA where banking has always been near the top of the political agenda – that we can barely imagine anything different.
David Boyle is a fellow of the New Economics Foundation and the author of Money Matters (Alistair Sawday).
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