Municipal Banks and Exemplar Institutions

There seems to have been a partial awakening at national level, enforced by events, that the banking system as it now is isn't serving ordinary people (i.e. voters) well (and, unreformed and unchallenged, it never will) and that some kind of regionalism in banking might be a good idea. Any such developments, if they came about, should not be left to the tender mercies of the private financial sector, to which political parties have been so closely wedded over the years, and which of course is mainly responsible for getting the country into another fine mess.

A significant part of the banking system should be in the public sector – and not just the worst bits. It is not that the privateers can't do it, but because they have proved themselves unworthy of it, time and again. These people simply cannot be trusted. The whole discredited system resulted from an unbridled faith in financial markets and our political leaders still prop them up whenever they can, to most people's embarrassment and dismay, and despite the evident corruption in some of these 'markets'. Banking is not an end in itself. We must ask the question who does it serve apart from itself?

For years it has been clear that there needs to be a simple and reliable service provided to ordinary people – especially savers. The former Birmingham Municipal Bank with forty branches throughout the city gave such a service and also issued mortgages at reasonable rates that didn’t need switching every ten minutes. 'Security with Interest' was the motto of the late and still lamented Municipal Bank from its foundation around 1916 right up to its closure on the 31^st of March 1976 – a very sad date, one day later would have been more appropriate to this decision.

Many of the city's older residents recall this people's Bank (and still cherish their passbooks) and the confidence and security that the bank offered them with the City Council guaranteeing the deposits. The Municipal Bank also encouraged the practice of saving from the earliest years through a stamp scheme that I think was operated through schools. The Municipal Bank was loved and trusted by all its users and should be brought back.

The idea would be to offer security to small savers and fair and consistent interest rates for saving, with no Zombie accounts with near zero interest and encouraging thrift – even explaining what this is to some younger people today. As well as security with interest (note the order) there are other mottoes inside the old headquarters building on Broad Street reflecting virtues that are well worth re-adopting today such as: “Saving is the Mother of Riches” and “Thrift radiates Happiness”. In other words real prosperity comes through saving in a trustworthy institution and satisfaction as well as wealth will be the result.

A re-creation of this much desired service could also extend to the provision of finance to small businesses who are still being starved of much needed capital despite the prodigious amount of public money that has been pumped into the private banks. Support for manufacturing was the main remit of the original banks founded in Birmingham but which are now morphed into unrecognisable, useless and globalised entities. A municipal bank could also support the issuance of municipal bonds so that local people can be part of the regeneration of our infrastructure – such as could have been the case with the new Central Library.

It would be entirely acceptable if a re-established Municipal Bank cast its net more widely throughout the region since ordinary people and small businesses in all parts of the West Midlands have been just as ill served by the bonus brigade as the residents of Birmingham. If so, I would suggest the name: ‘The Greater Birmingham Municipal Bank’. That really would radiate happiness more widely – and also serve the common good.

The commercial banks' profits, extracted by various means from British customers, are a disgraceful way to get back money they lost with their rash and incompetent investments and reckless lending. They are all up to it. It is yet another 'industry wide' phenomenon. If there was anything resembling genuine, service based competition industry wide copycat behaviour could not happen. This greedy and anti-social industry competes only to the extent of how long-standing customers can be cheated of fair rates of interest on their savings, hit by outrageous charges, forced to use call centres and palmed off with low quality services in understaffed branches. There is a desperate need for a real alternative operating on near-forgotten principles of service with fairness and responsibility.

While the Municipal Bank could help to renew social capital, provide trusted services, create jobs and be the means through which City Bonds could be issued, the commercial banks would probably attempt to stifle such an initiative with their armoury of anti-competitive practices – just as they attempted to do when the bank was first set up. These tactics could be overcome, and perhaps the subsequent exodus of customers from commercial banks would lead some of them to start mending their ways. Birmingham could lead the way as it did in the early days of commercial banking. It is sometimes asserted that such a move should be opposed because competition from a publicly owned bank would be unfair to the rest. But an effect on the rest is precisely what is needed, and is long overdue. The rest have hardly been afraid to be unfair to the public.

The creeping cartelisation evident in financial services is also a feature of other so-called competitive industries – witness the power companies and their outrageous leapfrogging price hikes – another industry wide phenomenon. Regulators range from inadequate to useless, and the toothless consumer groups are simply ignored. Unmitigated ‘competition’, meaning little more than a profit-grabbing free-for-all, is long past its sell by date.

If such sectors had a publicly owned firm acting as an exemplar institution, treating people in a respectful, honest and straightforward fashion, this would introduce a degree of competition that is socially worthwhile. It would offer security and fairness to ordinary people, presently abused by commercial predators, picking out vulnerable individuals, introducing deliberately complex pricing arrangements and pedalling  confusing ‘products’ also designed to deceive. Commerce should not be a morality free zone, nor need it be if there was confident, principled intervention through an exemplar institution.

A start towards a fully fledged municipal bank could be made with a savings bank (as was done back in 1916) with the scope broadening later if lobbying of the Government to restore municipal banks' former powers proved to be successful. This would be complementary to existing Credit Unions, which perform valuable if mostly small-scale services but which are not everybody's cup of tea.

We are often told that Birmingham should distinguish itself. What better way than by knocking aside the obstacles and putting people first with the renaissance of our own Municipal Bank? What a contrast this would be to the City of London in terms of both services and values. A bank for all seasons and all people, striking the right moral tone and offering simple, unsophisticated services.

Sometimes there’s a value in being unsophisticated – a remark originally attributed to RBS who clearly didn't see the irony. There most certainly is, and bankers should know this better than anyone. But I suspect that reform for them will be well nigh impossible – their deeply ingrained habits are very hard to drop altogether – their spots go deep. Incidentally, an old meaning of the word ‘sophisticated’ is ‘corrupt’ - which I think serves to underline the point.

Constancy and confidence were the values on which most of the true wealth of this country was built (much of it, alas, now cast to the winds under extractive capitalism) and which other institutions sought to complement and support. Is it too much to suppose that these fundamental principles might be worth rediscovering and implementing again today? They have not been lost by the majority of our population, but are hard if not impossible to find in the financial, fuel and power and other private sectors.

There are flies in this healing ointment. Despite the now promised reduction in the capital requirement from £5 million to £1 million to start things up, government legislation introduced in 2000 made the establishment of civic banks more difficult (Municipal Banks still exist in name in a few other local authorities but they are allowed to offer only very limited services to their own staff). Furthermore, governments have had an almost exclusive focus on access to credit and such like ‘financial services’. What we are also considering here is saving and fair, and comprehensible rates of interest rather than shifty packages (where loyalty is penalised with craftily cut rates and spurious ‘tracking’). The whole legislative background should be made enabling for local authorities. Indeed I believe that is should be a requirement for the metropolitan authorities to establish their own municipal bank.

Will we get this kind of positive action? I rather doubt it. And I fancy I know the real reasons for this. They are not flattering to our political system and the way it is financed nor to our economy. But we shall see – perhaps there will be a groundswell from the bottom up, perhaps one local authority will start the ball rolling or perhaps national politicians will realize that market fundamentalism does not ultimately serve them well – let alone the country, and perhaps we will move towards the time of the common good.