A return to ‘relationship banking’?
The recent news that Dad’s Army, the wartime comedy, is to be re-made as a feature film was greeted with a sceptical response in the letters pages of The Times. ‘Sir’, wrote one correspondent, ‘A revival of Dad’s Army will not work because no-one under 40 has met a bank manager’.
The acerbic Times letter captured a sense that British banks have become remote from their customers, with too many decisions made via bureaucratic procedure rather than local judgement. This connects to the frustrations of many small businesses about the availability of affordable credit. With the demise of ‘relationship banking’, there tends to be no way back if ‘the computer says no’.
Perhaps as a response to this frustration, both banks and policymakers are beginning to look at alternative, less centralised models. The TSB has begun to position itself as a ‘local bank’, implying a closer to connection to local businesses. Meanwhile, the Swedish bank Handelsbanken has been steadily expanding into the UK market, using its so called ‘church spire model’. The idea is that the area that any one branch lends in shouldn’t be much larger than anyone could see from the top of the local church tower.
Politically, there is growing interest in the role that government can play in facilitating more local banking. Ed Miliband has announced his intention to establish a network of regional banks should Labour win the next general election, citing the German Sparkassen as a model to emulate. From the government benches, Conservative MP Guy Opperman has lent his support to local banks, as a means to open up competition and spur local economic activity.
Despite the enthusiasm, questions remain for both the private and public sector models. In the case of the TSB, for example, the question is just how ‘local’ the model will be in practice. Local businesses will be able to secure a meeting with the local branch manager, but those managers will not have the power to overrule central lending decisions.
Where policymakers are concerned, the question is just how entangled either local or central government is willing to become in the banking system. At a time when the Treasury is busy trying to extricate itself from the ownership of nationalised banks, it remains to be seen whether there will be support for local institutions that are funded and guaranteed by the taxpayer, as is the case in Germany and Switzerland.
Resolving some of these dilemmas requires a clearer picture of whether more local banking represents the answer to the problem of small business lending (which itself is not clear cut) and, if so, which models are most viable and realistic. Demos will be examining these questions in a new research project, with a published report before the end of the year.
In the meantime, George Osborne, aged 42, has thrown his weight behind the Dad’s Army model. As he put it to the Federation of Small Businesses in April:
‘I know people, when they watch Dad’s Army, see Captain Mainwaring and he’s a comic character. But it was interesting that the bank manager was at the very centre of local life, knew all the businesses, knew the people who ran the businesses and was empowered to make judgements about who had a good idea…. I think the future lies in much more face-to-face banking.’