Why metro mayors must use political muscle to promote mutual banks - Greg Wright

Metro mayors have significant executive powers and funding available to them to make strategic decisions. When the public health crisis finally eases, the mayors should use their political clout to support the development of mutual banks, which could help the financial services sector emerge from the dark cloud cast by the financial crash.

Kevin Hollinrake, the Conservative MP for Thirsk and Malton, who is also co-chairman of the All Party Parliamentary Group on Fair Business Banking, has been a long-standing supporter of a mutual approach to banking.

Mr Hollinrake recalled: “In a packed hotel meeting room in York during the teeth of the ‘credit crunch’ in 2008, three or four intrepid senior managers of a leading high street bank tried to keep order.

“For the bank to call the meeting to try and explain to a several dozen good local business people why they could not continue to lend to them was brave, to say the least. These were people I had known for years. Many of these businesses had been in their family for generations.

“These were not chancers and speculators but prudent, knowledgeable captains of local industry who were at a complete loss as to why their babies were being thrown out with the bath water.”

Many of these business people closed their doors after the financial crisis. They had made their money and didn’t need to continue to take the risk of borrowing to invest, provide jobs and put money back into the supply chain.

Mr Hollinrake added: “Multiplying this group of people tens, or hundreds of thousands of times across the UK and we can start to understand the scale of the issue and how much ground UK plc had to make up in the years following the great financial crash.”

So why did the banks do this? Quite simply, it was in their financial interests to do so. This behaviour was linked to the reward structure.

From the CEO to the branch managers, pay was assessed in connection with the attainment of short-term - some might say short-sighted - goals.

A European Central Bank study found that total UK bank lending to non- financial corporates dropped by 25 per cent from 2008 to 2013.

Mr Hollinrake said: “As we know, the fallout in the UK wasn’t limited to not lending, in their headlong rush to restore their balance sheets, some banks were responsible for the tearing apart and destruction of thousands of viable businesses.”

There is nothing inevitable about this pattern behaviour. Many other nations do not wholly rely on shareholder-owned banks for their small business lending.

In Germany, for example, business lending is dominated by 1,500 regional mutual banks and co-ops.

During the same five-year period, German bank lending to domestic enterprises and the self-employed increased by around 20 per cent. The Swiss versions of these did even better, recording a 30 per cent increase, according to Mr Hollinrake.

The UK played a leading role in the development of mutual finance back in the 18th century and then lost interest and left it to others to recognise their value. The devolution of powers to metro mayors offers the perfect vehicle for the establishment and growth of regional mutual banks.

Mr Hollinrake added: “They can be mission and geography-led, which could dovetail perfectly with the levelling-up agendas of, for example, Andy Burnham in Manchester, Andy Street in the West Midlands and Ben Houchen in Tees Valley. I very much hope the mayor of the soon-to-be-established York City Region will also pick up this mantle.

“The good news is that we don’t need to start from scratch. There is a network of 18 mission- driven mutual banks across the UK, led by the excellent Tony Greenham of South-West Mutual. “

With an injection of capital and a reduction in red tape, a network of mutual banks could soon spring up around Britain. These banks could help post-pandemic Britain take the first steps towards economic recovery.

Support The Yorkshire Post and become a subscriber today.

Your subscription will help us to continue to bring quality news to the people of Yorkshire. In return, you'll see fewer ads on site, get free access to our app and receive exclusive members-only offers.

So, please - if you can - pay for our work. Just £5 per month is the starting point. If you think that which we are trying to achieve is worth more, you can pay us what you think we are worth. By doing so, you will be investing in something that is becoming increasingly rare. Independent journalism that cares less about right and left and more about right and wrong. Journalism you can trust.

Thank you

James Mitchinson