Another essential aspect of our lives where we can give people the option of choosing collective security is in banking. There is little love for Britain's banking system and the endless tales of mis-selling and corrupt practice are wearyingly familiar. But the extent to which retail banking has pressed us to take up more borrowing and bigger and bigger mortgages is perhaps the most damaging role they have taken. Add to this the poor track record of the private banking sector in providing finance to small business, which barely improved even after banks were given public money to improve their lending rates. That this lending isn't the kind of long term, supportive lending that productive start-up companies need compounds the issue.
Many countries have retail banking sectors dominated by municipal banking: mutual banking organised regionally across the country in democratic ways with a non-commercial purpose. It offers a large proportion of retail banking in Germany and Japan and there is no reason Scotland could not move towards that kind of model. Just as every regional council could set up an energy company, so they can set up a municipal development bank (a number already have them, but the model is not generally the one that should be followed so they're referred to here as municipal or local development banks). If a banking system of this sort existed right across Scotland then those banks, working with the National Investment Bank, could collectively capitalise themselves using local authority pension funds and collectively promote themselves to households and businesses—but only within their own region. This could be an attractive proposition for 'savers' to put their money into as commercial rates of interest for savers is low unless they invest in higher risk financially engineered 'products', while local businesses are crying out for stable long-term finance.
It would therefore be guaranteed that pension fund investment locally would go towards regional development, with the development bank working closely with local credit unions and other community-based financial institutions. This principle of regional investment would hopefully encourage more people to move away from the big commercial banks and set-up their account with their regional development bank, which would provide a significant further basis for investment in regional development. While there are different models of how these could be delivered, they could use existing council premises to create face-to-face banking services wherever there is a council presence. This would create an extensive network of banking facilities. But as more and more banking is done online or using new technology, much of the infrastructure would be virtual.
These banks would be governed democratically, with those who sign-up with the bank able to vote at the AGM. They would have different values and priorities to the existing private banks. They would be driven by the welfare of their customers. They would of course provide loans to people who need them—but they wouldn't constantly pester customers with expensive advertising encouraging them to take out loans they don't need, and they would not provide rates of interest which exploit the precariousness of low-pay and zero-hours contracts as do payday loan companies and some credit-providing shops that target those on low pay. Instead people could come to their regional bank and work out a low-interest loan with a long-term payment plan, as long as there was a realistic means by which the loan could be re-paid.
The local development banks would see a successful relationship with their business customers as the long-term growth and development of those businesses and not on the basis of how quickly they can get a profit back. They would be part of 'anchoring strategies' that would seek the continued presence of businesses in communities through loan conditionality (the loan being on the basis of a business continuing to invest in that community or region) and equity finance (the local bank taking a stake in the business to ensure its long-term strategy and vote at AGMs). And the decision-making on business loans would not be a tick-box exercise as to whether a business meets a pre-defined list of requirements, but would be based on local knowledge and understanding. Overall this might make these banks less profitable than their private competitors, but since they're not trying to generate profit for shareholders, they don't need to be. They just need to be the good, functional, supportive banks our society needs.