23 June 2017

Investing in a new bank

Investing in a new bank image

Warrington Borough Council's recent 33% ground-breaking investment into challenger Bank, Redwood Bank, marked the first investment of its type by a borough council.

Increased funding pressures has seen the emergence of council's developing creative funding and investment solutions such as using funds to invest into real estate portfolios or local NHS trusts.

Warrington, on the other hand, leveraged their investment and unique public-private partnership with Redwood to herald a return to community banking in the UK, driving both local and national SME growth and economic prosperity.

A reduction in money available for lending to individuals and small businesses has been a significant concern to local authorities. National studies indicate that SMEs currently face a £38bn funding shortfall. More councils are now directly lending to the business sector and according to a report by the New Local Government Network, over 70% of council leaders are interested in playing a bigger role in banking for the benefit of local communities and residents.

Warrington's investment also outlined a growing recognition of the vital need to re-establish local banking which understands and responds to local needs, and is accountable locally. This view has been given even greater precedence following the publication of the final report of the parliamentary commission on banking standards in June 2013 Changing Banking for Good.

Increasing SME lending in Warrington follows a policy directive by members and the results of a local business survey carried out in 2013 It also Supports the pledge in the council’s 2015/16 Corporate Strategy to grow a strong economy and supports need as various studies indicate Warrington as one of the largest number of fast growing SMEs in the UK.

Following extensive due diligence and full appraisal of various alternative options to deliver a lending model, Warrington Borough Council chose the banking option for its investment for the following reasons:

  • Strong governance structure
  • Incorporates strong banking / lending management and board experience as well as expertise the council did not have
  • Risk averse secured property lending model
  • Commercial approach
  • Maximises potential lending available with funding raised from SME deposits
  • Attractive investment return for the council that can be used for investing in front line services
  • Business Case verified by the Prudential Regulatory Authority (PRA) and Financial Conduct Authority (FCA)
  • Risks of the Business Case stress tested to latest banking standard risk assessment techniques

Following its investment the bank a banking licence was awarded in March 2017 the bank is now going through 'mobilisation' and is due to be open for business during the summer of 2017.

The bank will have its Headquarters in in Letchworth and its northern regional office will be in Warrington targeting SMEs in Warrington and the Northern Powerhouse Regions.

This model offers similar opportunities to all councils to introduce and promote SME lending in their own regions and over time the bank could be added to councils’ investment counterparty lists, creating a truly integrated local authority / private sector lending model. This would drive both local and national SME growth and economic prosperity

Danny Mathers is corporate manager at Warrington Borough Council and Mike O'Connor is national head of infrastructure, projects and energy group at Addleshaw Goddard.

This feature first appeared in Local Government News magazine. Click here to sign up for your own free copy.

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