A Local Banking System

Our missing local banking infrastructure, why it matters and what can be done about it

Most people are familiar with the manifold failings of the UK banking infrastructure.

These might be summarised in this way:

  • They are decreasingly present on high streets: the number of bank branches is down 43 per cent in 20 years. There are often shorter opening hours in the branches that are left.1 Access to banking is vital to the survival of retail and other services in many medium-sized rural communities and in less well-off suburbs, estates, and inner cities. If active people and small businesses go to bank elsewhere, they are likely to spend elsewhere, too. New research by the Cleveland Federal Reserve found that a physical bank presence makes it easier for customers to access loans – but also that that those loans are less likely to default.
  • They drive money flows to the wrong places, encouraging money into speculation – including most property investment – rather than productive enterprise. The few big banks operate at an ever-more profitable distance from their customers, thanks to new, automated techniques such as credit scoring.
  • They are failing to provide loans to small business, partly because they have replaced investment decisions based on local judgement with decisions based on credit scoring software. Relationship-banking has gone in to decline, as employees with direct knowledge of borrowers have been shed in favour of centralised IT systems able to deliver apparently more efficient’ computer ratings.

This briefing sets out the case that Britain is missing a critical sector of banking which its competitor nations have, and that this undermines the UK’s ability to capitalise on its entrepreneurial culture.



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