Many of the high-street financial institutions we currently rely on are divorced from the communities they supposedly serve; as part of a far larger institution, the bank on your high street responds not to the needs of the town, or even the region it is based in, but to demands set nationally or, more likely, internationally.

Take one of the first financial institutions in the UK which dramatically imploded in 2008, Northern Rock, whose story demonstrated a structural problem which had arisen in British finance in the years since the Thatcher Government deregulated finance.

Northern Rock, like the Britannia, then linked to Leek in Staffordshire, or the Leeds Permanent, serving Yorkshire, was at its outset a building society serving the North East in particular. Across the country, each served its local community – and responded to local needs.

Yet the deregulation of financial institutions, set in train under the Thatcher Government, saw these truly local institutions first demutualise, then get swallowed up into much larger financial institutions; Halifax was subsumed into Bank of Scotland and Abbey into the Spanish Santander group. Some vanished altogether – and some, like Northern Rock five years ago, imploded dramatically.

In 2008, the international banking and investment system failed. A centralised banking system proved itself fallible, and its failure is still reverberating through the economy, right down to the high street where smaller companies are still finding problems raising finance.

Yet while the demise of regional institutions in the years following demutualisation divorced the financial institutions from the communities they serve, one of our European neighbours – Germany – provides a fresh model for British banking.

German regional banks, the Sparkassen, are a product of the country’s decentralised nature; both its politics and, importantly, its financial structures, do not entirely follow the centralised British model.

The Sparkassen are banks which are rooted in their communities; they are limited in their operations geographically and therefore serve only their region. This tie means closer regional links, with customers – whether individuals or companies – depositors, and borrowers all from a particular region. This regional structure creates a bank responsive to regional needs, not a centralised institution. It is also popular – more than half of German customers have their principal account with a Sparkassen.

This popular, local lending creates a virtuous circle – a bank which responds to local needs, and which succeeds as a result. A responsive institution boosts its local economy; that success boosts it in turn. With sectors such as construction finding it hard to raise finance – as was made clear during a recent conference on finance for housing and construction where I discussed the idea of Sparkassen – then perhaps a truly regional bank is an idea whose time has come.

Ian Lucas is Shadow Minister for the Middle East and Africa and MP for Wrexham

 

Bring on Sparkassen, British Banking Remains in Crisis
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