The long road to establishing the Bank of Birmingham
the European Union and not allow the state to unfairly distort competition, there are a range of exemptions, schemes and guidelines that enable state funding to support economic activity and address market failure.”
Council lawyers will be looking carefully at the merits of a proposed Reverse PFI plan, which would see the council, through the municipal bank, borrow money to buy buildings and assets from troubled firms.
The firms would use the money from the council to continue in business, while leasing the assets back from the local authority over an agreed period of time.
At the end of the timescale, possibly 10 years, the firms would once more own the assets.
Even at this early stage, differences of opinion are emerging about the role of the municipal bank.
Review group member Michael Wilkes, and some of his colleagues, want assurances that the bank will operate savings accounts for “ordinary Brummies” and will not just be involved in lending money to help ailing businesses through the recession.
However, the paper put to the group hints that this may not happen for a number of reasons: “Deposit accounts have been suggested as a product to be aimed widely and without restriction to Birmingham residents.
“The aim is to provide a deposit only facility in which customers have confidence based on the assumption that people are losing their trust in the banking sector.
“The taking of personal deposits is a return to the municipal banking history of Birmingham and is a service that the council no longer has the administrative infrastructure to deliver in-house.
“It is doubtful that the council could offer attractive interest rates to customers as the council itself would deposit the funds and need to make a minimum return.”
There are also commercial and legal difficulties, as the paper makes clear: “It is expected that a council run or backed mortgage service is more suitable as a short term intervention to support the housing market as in the longer term the council would expect market recovery to provide more competitive rates.
“National policy currently prevents local authorities from providing lower rates than those prevailing in the market.”
Coun Wilkes (Lib Dem Hall Green) said he believed municipal bank customers would be happy to take lower interest rates than those offered by high street banks because they would have greater security over their savings.
He added: “Birmingham’s former municipal bank had a motto that was ‘security with interest’, in that order.
“I am sure that people would deposit money with a municipal bank because they trust the council far more than they trust the banks.
“As to the argument that the council doesn’t have the skills among its officers, well we will have to develop them.”
