'Bank of Birmingham' would need £200m to set up
Mar 26 2009 by Paul Dale, Birmingham Post
It would take Birmingham City Council more than two years to gain regulatory approval to set up a municipal bank at a cost of about £200 million, it emerged last night.
The timescale and the financial estimate is based on the experience of the Islamic Bank of Britain when it requested a licence from the Financial Services Authority to operate in this country.
Islamic Bank chief executive Gerry Deegan told a scrutiny committee that the council would have to be prepared to navigate through a maze of compliance issues and would need to spend at least £4 million on feasibility studies for the FSA.
Mr Deegan added that the council would have to be prepared to lose some of the bank’s working capital of £200 million “if things went wrong”.
There would also be huge pressures to train staff who were to work in the municipal bank, he said.
Mr Deegan added that the Islamic Bank would be happy to work with the council to help it offer some form of financial services.
His comments came amid signs of tension among councillors over a proposal to re-open the Birmingham municipal bank, which closed 30 years ago.
The idea was proposed by council leader Mike Whitby, who believes the city could offer loans to help businesses and families through the recession.
Local authority officers are to meet with lawyers in London next month to see whether the council can legally open a bank.
But the cost of the exercise was questioned by Coun Deirdre Alden (Con, Edgbaston), who warned the council would be wasting its money if a decision was eventually taken not to proceed with a full-scale bank.
Council chief executive Stephen Hughes has already hinted that the local authority may not be able to open a bank by itself but could link with an existing high street bank to provide services tailored for citizens in Birmingham.
Coun Alden added: “I am getting very concerned about how expensive this might be.
“If we are starting to get legal advice then the cost will be mounting.”
One option under consideration is that the council could help boost the housing market by offering top-up mortgages. Buyers would borrow money from the council to meet the minimum 25 per cent deposit based on the value of a property now demanded by most banks and building societies.
Coun Mick Wilkes (Lib Dem, Hall Green), who is emerging as the backbench champion of the municipal bank proposal, said: “I don’t think we should be frightened to invest on an appropriate scale in services that would be so much appreciated by customers.”
