Lending from Bank of Birmingham would have greater risk, warns HSBC

Feb 27 2009 by Paul Dale, Birmingham Post

One of the world’s largest financial institutions has poured cold water on Birmingham City Council’s plan to open a municipal bank.

HSBC West Midlands commercial director Roy Harris said the council might end up bailing out firms regarded as financially unsound by mainstream banks if it went ahead with a proposal to lend money to small businesses hit by the recession.

He added that there was no need for the council to enter the commercial loans market because high street banks were already lending to firms.

Mr Harris told a council scrutiny review group: “Setting up a municipal bank would not be without its difficulties. To do so would take you into a market place where I believe funding already exists, certainly through HSBC, and where you might pick up the rump end of the lending that clearing banks won’t want to do. It involves much greater risk.”

His comments were welcomed by review group members, who made it clear they envisaged the municipal bank chiefly as a savings bank for Birmingham people and not as an institution set up to offer loans to businesses.