Brits increasingly want banks that do things differently

Over the coming weeks thousands of students will open a new bank account – often finding that as well as a debit card their account comes with a free Railcard, free music downloads or a cash incentive.

For decades now the banks have tried to reduce the judgement between banks to a choice between the various give-aways.

But recently there has been a growing recognition that there is far more than the value of these give-aways to mark these banks apart.

As a country we have had enough of the excessive bonuses paid to City bankers, the wholesale mis-selling of products such as Payment Protection Insurance and the banks’ systematic inability to lend.

Increasing numbers of us nationwide are looking for banks to be concerned with ethics as well as profits, and by social responsibility as well as shareholders.  We are already looking for banks that are willing to do things differently.

Earlier this month Ed Miliband identified this shift when he talked about the need for our banks to move away from ‘casino banking’ to ‘stewardship banking’.  ‘Casino banking’ is the system that encourages banks to sell high-risk products – even to customers looking for a safe option – and is driven by short term goals and bonuses.  ‘Stewardship banking’ would put the focus on local bank managers who understood their customers and could supply them with the simple low-risk products they require.

Like the Vickers Commission, Ed was clear that there should be a clear divide between retail and investment banking. And he called for an increase in the number of banking outlets available – ensuring the marketplace was no longer dominated by a small number of banks.

One of the alternatives he highlighted was the mutual model – still used by a diminishing network of local building societies across the country and by the Co-operative Bank.

Unlike the larger high street banks the mutuals don’t have to put the interests of their shareholders first.  Instead it’s the customers – or members – who are at the heart of their decision-making processes. And that means that rather than being geared up for the short term financial benefits demanded by the prevalent banking culture, the Co-operative looks to the longer term good of its members.

As a Co-operative Party MP I strongly believe in the principles of mutualism.  The dramatic increase in enquiries to the bank in the wake of the recent Libor scandal shows there may well be a growing appetite for this approach to banking.

In a deal announced last week, the Co-operative could be running 632 of Lloyds branches by the end of 2013 – which will introduce a further 4.8million customers to co-operative banking.

This will take us a step closer to increasing banking choice on the high street and I believe a stronger mutual sector will help to change the culture and practices of all our banks.

However, increasing the choice of banks on the high street isn’t enough on its own if we are to address the seeming reluctance of banks to lend to small and medium sized businesses.  I regularly visit businesses around my Stalybridge and Hyde constituency and I have a particular interest in the manufacturing sector.  They routinely tell me how difficult they find it to find finance and that the banks seem reluctant to lend to them. The figures show that they are right: the proportion of refused loan applications made by SMEs grew significantly between 2007 and 2010.  In the manufacturing sector the issue is even more pronounced, with figures showing that last March, of all the business loans in the country, just 2.5 per cent went to manufacturers.

That’s why I believe Labour’s plan for a British Investment Bank is such a good idea.  After all it’s our small and medium sized businesses that create most new jobs  – ensuring that they survive and that they are equipped to grow should always be a priority.  And if we want to grow our way out of recession, I believe it’s more important than ever to support our manufacturers.

We are currently the only member of the G8 not to have a dedicated institution to deal with SME financing issues.  The British Investment Bank would be a Government-backed financing institution and if we are serious about our businesses we need to look at the ways this could be developed to support the UK economy.

Most people now accept that the time for change in the banking sector is long-overdue. We will continue to push for change – including the need for a wider range of banking options on the high street and the establishment of a British Investment Bank.

Unfortunately these changes will take time – but until then we do have influence as customers.  So, if you do know someone who’s opening their first account this summer, suggest the give-aways on offer might not be the only thing they should consider when choosing who to bank with.

Jonathan Reynolds is the Labour and Co-operative Party MP for Stalybridge and Hyde and  PPS to the Leader of the Labour Party Ed Miliband.