Local authorities could be launching own banks

According to recent reports a couple of local authorities have stated that they are on the verge of setting up their own banks in order to assist small businesses. The government banks will be designed to help small businesses that are struggling to get the finance that they need through traditional High Street banks, as many are at the moment due to the credit crunch and more stringent lending conditions.

Birmingham City Council and Essex County Council are amongst the two councils that are looking at setting up their own banks for help businesses. However, the councils have said that strict checks would first be carried out on the financial state of the businesses to ensure that it was viable to give them the loan that they needed.

Reports suggest that the banks will not be taking deposits, and they will not be looking to branch out. Rules have not yet been put into place with regards to how the authorities will work out which of the companies will be eligible to borrow money from the government banks.

An Essex County Council official said recently: “We intend to do a thorough risk assessment, we’re not just using local government officers, we’re using banking people.” A Birmingham City Council official said: “The role of local government is to be the leaders of their communities. If we don’t solve problems around economic prosperity, we will have increasing social problems.”