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Banking reform from the bottom up

f336c1903e40d41884f794b35c48bc9c.jpgLike most people of my generation my first memory of banks wasn't a bank but a Building Society. But most of them soon disappeared after the deregulation reforms of the 1980's.

After that they weren’t something I paid much attention to other than moving between them as a student to get the ever larger over-draft facilities they each offered. Then the financial crisis hit, and I found myself trying to understand what derivatives were and how they had almost led to the economy collapsing.

Several years on and people across Norwich are still living with the effects, like most communities outside London and the south East, we struggle to get access to finance.

It’s probably stating the obvious to say banks are the engines of our economy. We learned pretty quickly what happens when they break down. The IMF calculates that the total cost of bailing out the UK financial system was £1.3 trillion, more than ten times the budget for the NHS. Since then, there’s been a lot of talk about reforming the big banks to stop them doing more damage in future and to get them to kick start our recovery and some limited action.

But much less has been said about the other thing IMF researchers found – that the UK had to pledge more support to its banks than almost any other advanced economy. Our £1.28 trillion bailout represented about 88 per cent of GDP. That’s more than twice the US equivalent and accounts for almost one fifth of the £6.8 trillion used to bail out banks globally.

Why did the banking bail out cost us so much? Because in Britain we have an abnormal banking system dominated by a small number of very big banks. Three quarters of people with bank accounts have them with Barclays, HSBC, RBS or Lloyds, the big four commercial giants that were too big to fail. These banks answer to global shareholders not local communities. They lend where there is easy money to be made, not where investment is most needed, and they make decisions about risk based on maximising their profits. In the last two years, the coalition has offered £23 billion of support to the big four to get them lending to the rest of the economy, but we’ve barely got any bang for our buck with only £3.6 billion worth of new loans. We know too well what has filled the gap for some. Since 2010, the top payday lenders have more than doubled their revenues in Britain. In Norwich there are 5 branches of these legal loan sharks for every 100,000 people, disproportionately located in poorer parts of the city.

In January 2014, Ed Miliband called for a “reckoning” with our big banks, and committed the next Labour government to cap the share of the market any one bank is allowed and to create new challenger banks to reduce the power of the big four.  Alongside plans to create a British Investment Bank which will have six regional branches, there is a big picture plan for the banking industry. But we also need to think small, and revitalise the community banking that once thrived across Britain.

In Norwich part of the answer lies in our credit unions. They’re a real example of the kind of finance system we need to build – one that prioritises people over profit and makes sure no one is left behind. In the 22 years since the West Norwich Credit Union has been operating as “a financial co-operative that is owned and democratically controlled by its members and run solely for the benefit of its members.” In that time it’s saved the community it serves more than £1 million in reduced borrowing costs alone. But nationally only **two per cent of people in Britain are a member of a credit union, compared to Ireland where it is 72%.

This is a huge challenge for the grassroots of the Labour Party. To match our commitments to reforming the big banks with a movement to rebuild our community banks from the bottom up. To boost membership of credit unions and campaign for them to have more power to lend locally.

It’s not enough to create new banks that are going to behave like the old ones. It’s time to build a movement for better banks from the bottom up and grow the institutions in our communities that offer much more than commercial banks.

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