Simple, local, everyday banking
The community bank for Greater Manchester will provide personal and business customers with current accounts, savings and loans.
The bank will be based in Greater Manchester. There will be branches across Greater Manchester, as well as online and mobile banking.
A bank that is owned by its customers
The success of the community bank depends on putting the interests of its customer-members first and in supporting the local economy of Greater Manchester as an anchor institution. A community bank can get to know its customers and should be trusted by them
The bank will work with other local organisations to meet its objectives of enhancing financial inclusion, contributing to a sustainable and just Greater Manchester and promoting transparency and accountability.
What’s special about a community bank?
A community bank is a new kind of bank. The GM community bank will be locally based and will operate for the sole purpose of supporting local people.
What is special about the all community banks is that the customers will also be the owners. The GM community bank will be a co-operative, owned and controlled by its customers on a one-member, one-vote basis. Having local people and interests at the heart of the bank will help it to meet the needs of residents, businesses and communities.
The GM bank can only operate in the region so its objectives are not to expand and lose its local focus, but to serve the needs of current and future customers.
Why do we need a new kind of bank?
There are lots of things wrong with the current retail banking system in the UK, as demonstrated by record low levels of public trust in banks since the 2008 financial crisis when two major banks were bailed out with taxpayers’ money.
The current problems with retail banking affect both business and private customers: nationally-based big banks find it difficult to meet the needs of small and medium sized businesses (SMEs); they have closed branches; and been found to have mis-sold financial products to many of their customers.
Access to banking services is an everyday necessity for citizens, small businesses, charities and social enterprises. Many GM residents do not have a bank account and this means that they pay much more for many basics like utilities. A bank for Greater Manchester can focus on local needs to help sustain a diverse and successful region.
Don’t we already have credit unions?
Credit unions are very effective and popular: over 50,000 people across Greater Manchester use credit unions. Credit unions help local people to build up savings and offer modest credit on fair terms. However, credit unions cannot offer a full range of banking services: they do not provide current accounts and they cannot create credit to allow more lending to local businesses and social enterprises. The GM bank would work with credit unions and other organisations to help provide access to financial services for all members of the community.
Don’t we already have Community Development Financial Institutions (CDFIs)?
CDFIs operate regionally to provide credit to organisations that may otherwise find it hard to access finance. For example, in Greater Manchester GC Business Finance provides credit to businesses at different stages of development, including early stage or export finance. A community bank provides a different and complementary offer: CDFIs cannot provide a full banking service; and they are dependent on external sources of finance (some of it related to government policies), whereas a community bank is independent and self-sustaining because it can create credit and has a wide range of customers. A community bank therefore offers a distinctive and complimentary piece of the financial ecosystem to work alongside existing organisations including credit unions and CDFIs which target different needs.
What difference will it make to GM?
A community bank can have a significant economic and social impact in the following ways.
- A bank that offers a distinctive choice for local residents, who then have a say in the future development of a bank that is accountable to them as customers, not to distant shareholders. As the bank does not pay dividends to shareholders, customer-members will benefit through higher interest rates on savings and/or lower charges, as well as bonuses paid out. In short, the customers are stakeholders who benefit from the success of the bank.
- A bank that can build local relationships: the CSBA model is based on establishing principal branches with autonomy so that, for example, a local branch manager can make decisions about lending. Principal branches can be established across GM to allow relationships to be built at the local level with bank customers – particularly small and medium size enterprises -under an umbrella of the regional bank.
- A bank that can provide credit to the local and regional economies to support business and social enterprise.
- A bank that retains its surpluses locally: unlike other retail banks whose headquarters are elsewhere and which export profits made from the region to London or further afield, the surpluses are retained in GM.
- A bank that can work alongside other initiatives such as a local industrial strategy to help improve infrastructure and support SMEs.
Isn’t it very expensive to start a bank? How will it be financed?
The CSBA estimates that £20 million of equity finance is required to start a community bank. This is not all required at the outset but needs to be built up over several stages: NEF estimate that a start-up fund of £150 – 300,000 is required, with a further £1 -2 million to achieve bank authorisation. Further equity (£4-5 million) is then required to open branches, set-up online channels and recruit staff (mobilisation), with £13 -14 million then required to capitalise and launch the bank. Different types of investors are likely to be interested in different phases of the capitalisation. Based on experience of other community banks and the advice of the CSBA, it is expected that investors will include local authorities and pension funds, local organisations like housing associations, social impact funds, charitable foundations, social investors and others whose aims are compatible with the community banking initiative.
How long will it take to set up the bank?
Establishing a community bank is a significant task, even with the support of the CSBA, RSA and other organisations. The necessary steps include fund raising, obtaining a banking licence, establishing an effective organisation with appropriate expertise and develop management and governance structures that will both gain the trust of stakeholders and provide the basis for successful launch and operation. It is likely to take 9-12 months to carry out preliminary evaluations and preparations prior to submitting the banking licence request to the Bank of England. The licence authorisation process takes around 12 months and, after achieving this milestone, significant work needs to be done to put all of the structures in place for the bank to operate. Taking all of this into account, it is realistic to expect it to take around three years from getting started on the plans to having a fully operational bank with all restrictions lifted.
Is a community bank very risky?
The community bank, like all banks, is licenced by the Bank of England and regulated by the Prudential Regulation Authority, which acts to protect the interests of bank customers. On that basis, community bank customers are safeguarded in the same way as other banks. In addition, there are other distinctive features of a community banks which will help to manage the risks that any retail bank can face.
While the community bank will be inclusive and accessible to the residents of GM, it aims to have a mix of customers from across the region and from different demographic groups which helps to reduce risk. It is estimated that the bank needs a minimum of 46,750 private customers and 12,750 ‘business’ customers (including voluntary and community organisations, public sector and other organisations such as housing associations or universities) to be fully financially sustainable, from a region of around 3 million people. In addition to a diverse customer base, the bank is designed to have low overhead costs. The community bank will adopt a prudent and responsible approach to lending. Building relationships with local business members, as well as using local knowledge and ‘soft’ information, will contribute both to lending decisions and will help reduce risks of default on loans to those customers.