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Better Banking: A Public-Good Banking Network For Scotland

17th January 2020

Many people feel frustrated by the Big Banks and they way they are closing branches and continuing to with draw from communities and their continuing reductions in lending to smaller local businesses.

A new report published by Common Weal this week shows there is another way for banking already in use in other countries that is rooted in a banking system owned by its customers.

The report is by Dr Gemma Bone Dodds is an innovation and systems change specialist who concentrates on economic transformation and is the author of the Common Weal paper Banking for the Common Good: Laying the foundations for safe,

sustainable, stakeholder banking in Scotland. She has a PhD in diverse economic thinking and is a director of All In, a research and systems change agency dedicated to transforming the economy to serve the needs of society and the environment.

Increasingly, banks are not place-based institutions, and they don't finance businesses which are rooted in communities either.

New research has shown a correlation between declining bank branches and a fall in bank lending to small businesses. So for example, North Ayrshire has had a 31.45 per cent drop in lending to small businesses in four years, and has lost one of every five bank branches in the area in that time.

Over the whole of Scotland, the picture is grim. 24 out of 32 Scottish local authorities saw a fall in lending to SME's, with one in three bank branches closing in the past eight years. Scotland is one of the parts of the UK which has been most affected by falling bank branches, with the areas that need them the most - rural communities which are often not online - most affected by the cuts.

Banks have by and large gone digital, but while this of course is a global trend, it is exacerbated in Scotland by the country's uniquely concentrated and corporate banking sector. Just two banks, RBS and Bank of Scotland (now owned by Lloyds), control over 70 per cent of SME lending. This is not normal. Other countries, like Germany and even the United States, have a large sector of co-operatives, credit unions and mutuals, and even local state-backed banks.

This monopolisation has encouraged appalling practices, the most notorious of which was RBS' Global Restructuring Group, which deliberately sought to destroy small business customers so the bank could asset-strip on the cheap.

It's not sustainable for communities and small businesses (which still makes up half of the Scottish economy) in Scotland to continue to be hung out to dry by the country's banks. Westminster won't do anything about it - so alternative institutions in Scotland will have to be built from the ground-up.

Ben Wray, Common A.M.

The fall in lending to SME's in Scotland over the past four years totals a whopping £1.8 billion.

In five local authority areas - North Ayrshire, Falkirk, East Renfrewshire, West Lothian and Na h-Eileanan Siar - the fall in SME lending in that time is over 25 per cent.

Two-thirds of the most deprived areas in Scotland are in those local authorities which saw the largest drops in funding for SME's.

As well as bank branches closing round the country and SME lending declining, cash machines are being lost at a rate of 75 a month, with one in four now charging for use.

Comment: The Federation of Small Businesses have called for the banks to club together in shared banking hubs. Colin Borland, FSB's director of devolved nations, said: "Despite some pockets of Scotland where the figures seem more buoyant, it's clear smaller firms aren't tapping external sources of finance as much as they used to. This has a knock on effect on business investment, supply chains and ultimately growth.

"And given that Scotland has faced a disproportionate number of bank branches disappearing from local communities, we should hardly be surprised that their lending figures are taking a hit. That's why we need to see the big banks come good on their promise to deliver shared banking hubs."

A public-good banking system: The Common Weal has proposed an alternative to corporate-dominated retail banking, publishing a report in September last year by Dr Gemma Bone Dodds which proposed a network of mutual banks run on a not-for-profit basis and owned by its customers, in every part of Scotland. You can read that report HERE

Note

Common Weal is a ‘think and do tank' campaigning for social and economic equality in Scotland. https://commonweal.scot/

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