ResPublica trigger banking reform debate

UK building societies account for just 3% of banking assets. But in five EU member states, including France and Germany, societies have more than a 40% market share.

ResPublica want building societies to be able to lend to SMEs, as current restrictions on lending mean that 75% must be secured against residential property.

It also wants mutual insurers to establish network organisations to compete with the large non-mutual insurers by helping them generate economies of scale.

Phillip Blond, ResPublica director, said: “Until we get a proper structure for the funding of small business, we cannot secure Britain’s long term prosperity.

“We already have the SME support system we need – building societies. These, if freed from regulatory constraint, can and should lend to our small businesses. The solution is here, let us hope the government reaches for it.”

Robin Fieth, chief executive of the Building Societies Association, csaid: “The Report recommends that changes are made to the rules within which building societies operate so that they can lend a higher proportion of their funds to SMEs. The objective to widen the sources of SME finance is understandable, but building societies are not the panacea to restoring SME lending.

“Many societies already provide services to small businesses and redrawing the limits of what societies can lend will not of itself create large scale financing.

“The BSA believes that decisions relating to business lending activities are best taken by individual societies taking into account their own expertise, strategy and crucially the benefits to their members.”

He added that past conversions of building societies into plc banks were widely regretted, while the BSA did not see any realistic prospect of the building societies sector acquiring large high street banks.

ResPublica also want the UK to imitate America’s Community Reinvestment Act, which requires banks and large financial organisations to reinvest in the communities they serve.

Across the pond this delivered over $68bn of private investment in less than 10 years.

With any such reforms however they called for the HM Treasury to establish a ‘trigger’ policy, ensuring there is a review to determine if the proposed changes will have negative consequences.

Cathy Jamieson MP, shadow financial secretary to the Treasury, said: “Since 2008, and with little help from the Funding for Lending scheme, many of our small businesses have struggled to secure finance from the large banks.

“The government should be doing all it can to support the growth of these financial institutions to ensure we create a financial system that supports our small businesses and truly serves the needs of our citizens and communities.”

The ResPublica report, Markets for the Many: How civic finance can open up markets and widen access, was published last week.