Thousands of Wirral’s least well-off will be able to access a bank and credit under radical new plans being considered by the local authority.
Wirral Council’s ruling cabinet is being asked to agree to an initial investment in the new community bank.
Under the proposals this would allow residents who have difficulty obtaining a current account to access the full range of banking services.
It would also help Wirral’s many small and medium sized businesses who need to access credit while at the same time bringing banks back to the borough’s high streets and placing cash machines where people most need them – at a time when free to use ATMs are being removed from the least affluent areas.
The bank is being set up in partnership between Wirral, Preston and Liverpool and will operate across the north west of England.
Cabinet member for finance and resources, Cllr Janette Williamson, said: “We will step in to provide the service the high street banks are failing to make widely enough available as they focus on their most valuable customers and shut branches where many of our residents actually need them most.
“There is no doubt that it ‘costs more to be poor’ and working with other councils we are determined to do our bit to help those who need it most.
“We’re really pleased to see other councils such as Preston and Liverpool joining us in setting this up.”
In March Wirral Council agreed to £5 million capital funding towards the community bank between 2019 and 2024.
Once operational the bank would charge a small monthly fee with no additional “hidden” charges such as for bank letters or overdraft penalties. The current account product would also offer ‘jam-jar accounting’ so that money is ring-fenced and separated as it comes in dividing money into separate pots for different purposes to help people ensure they can pay rent and bills.
It is estimated that there are almost 6,000 households in Wirral without a bank account who face paying a “poverty premium” because they cannot access lower prices, for example for energy and utilities through direct debits rather than expensive pre-payment meters.
In addition Wirral’s economy is dominated by the SME sector – of the 8,550 enterprises in the borough, only 20 have 250 or more employees – many of which struggle to obtain credit from big banks. According to the latest national data on SMEs from UK Finance, loans to the sector are falling and around 20% of loan applications from SMEs were rejected by the major banks in Quarter 2 of 2017.
Cllr Williamson added: “Traditional banks assess risk and profitability together, which often excludes particular groups of customers and businesses. Our customers are not likely to be high risk, but not ‘profitable’ enough for traditional banks. Excluding those people is bad for them and bad for our community, as it can lead to financial deprivation, and takes money out of our local economy.
“The wider implication for having a community bank is retaining and improving community wealth and our local economy, which traditional banks do not care enough about.”
Each main bank branch will have a ‘traditional’ bank manager, expected to know their customers and to make lending decisions accordingly. The evidence shows that this model, if skilfully applied, leads to lower default rates than current credit scoring methods because of the personal relationship between lender and borrower.
Lending will be financed from savings deposited so the bank will not be dependent on wholesale finance markets or lend in such a way as to create the significant risks we have seen in some high street banks in the past.
The bank, in order to become operational, would require a license from the Prudential Regulation Authority, which would not grant such a license to an operation that it considered likely to fail. The bank would be overseen by a board of directors who will then appoint a manager and staff to establish and run the bank, with the councils acting as investors.