Is it possible that the US - the country that gave the world the banking crisis and put "sub-prime lending" into the world's headlines - could have at least part of the answer to how Britain should change the way we save and borrow our money in the future?
A network of "banks" owned by their consumers — credit unions and other financial co-operatives and mutuals, or social enterprises and charity banks — could offer the type of financial services that now seem a distant memory in too many of our communities. At the same time they could help tackle the banking culture which is at the heart of the interest rate fixing scandal at Barclays and other big banks.
Our traditional banks are, even with the bailout, global players. Over the last ten years, more and more of the costs associated with a local branch network have been stripped out. Bank branches galore have closed; replaced by remote — often offshore — telephone banking services using sophisticated computer scoring to decide whether a loan can be granted or not.
In too many communities there are no bank branches. In too many others there is only one left; and a new breed of aggressive high interest lenders have emerged – Wonga, the Money Shop, etc – to exploit those whose finances are tight but who need short term loans and the idea that bank staff making key decisions might know local businesses, might be locally based themselves or might understand the lives customers are leading is increasingly a thing of the past.
America offers the possibility of a new set of financial players in our local communities, to fill the vacuum when the major banks aren't around and which help to keep more of a communities' wealth in their local area – offering a local "multiplier" benefit – through their lending to local people.
These new financial players are not new to Britain – but the possibility of a more significant role in key financial services markets has not been properly explored to date.
Credit Unions now cover in theory virtually every area of the UK. Community "banks" also expanded during the last government. Indeed I visited the expanding Bridgend Credit Union only last month. The people of Bridgend, or even Harrow, where I belong to a small credit union, may feel they have little in common with the US Navy but it is the US Navy Federal Credit Union which paints new possibilities for Britain's growing, but oh so slowly, credit union movement.
Rear Admiral Cutler Dawson first cut his teeth in the American Navy, captaining US destroyers. Now he is captain of a very different organisation, America's biggest credit union the Navy Federal, he is in the frontline of a different type of battle: the competition with high interest charging payday lenders. In the US payday lenders used to target military bases trying to hook American sailors and soldiers with their high cost financial services. New legislation and the high quality, low cost financial products the credit union can offer mean the Navy Federal Credit Union now has four million members and over $50 billion of assets – with branches in every military base in the US offering a very direct and personal service to its members.
In the US, Credit Unions have tax advantages helping them to hold their own in financial services markets offering a serious, sustained alternative to traditional banks. In addition, Community Development Finance Institutions, essentially mutual or community banks, have emerged to help plug gaps in financial services markets where banks don't or won't serve the "unbanked" or "underbanked".
US Credit unions are now expanding their offer – looking to provide loans to small businesses and tap into the growing disillusionment with traditional banks among the American business community. A fierce debate has started in the media, on the airwaves and in Congress with the banks fighting to limit the offer credit unions can make in business lending markets.
Such debates are new in the UK as for example the number of British building societies have thinned out – thanks to the tidal wave of demutualisations in the 1980s and 1990s. Our traditional banks can afford to ignore the competition from credit unions and our community banks. Community banking and credit unions in the US are much bigger, having steadily grown since the 1980s. Indeed, President Barack Obama famously began his career helping community banks organise in Chicago.
American community banks and credit unions are helping some of those in "squeezed" neighbourhoods survive the impact of the sub-prime crisis, reorganising loans over longer periods at cheaper interest rates and helping keep financial services markets in the US more competitive for those on middle and low incomes.
They are helping to fund centres for the homeless and allowing small businesses to grow and develop creating more jobs in poorer neighbourhoods.
Social enterprise in the form of community banks, credit unions and other financial mutuals with a little more support could widen the market for financial services and increase the competition our traditional banks face. Isn't now the time we should consider what that support might look like and put a bit more "people power" into community banking?
Gareth Thomas is Labour and Co-op MP for Harrow West and chair of The Co-op Party.
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