Localism for banking?

This post stems from a short exchange I had with Charlotte and Nikki at @Which? that stemmed from some of the comments made by that organisation on what it wanted to see happen with banks.

One of the things local government ministers of all parties have been pushing for in England in recent years is the devolution of powers and responsibilities from Whitehall to local councils. Many have commented about the experiences of – and limitations of centralisation in the realm of delivering public services. Yet when we move into the world of big business, do we find similar patterns of centralisation – and similar limitations?

Prior to my time in the civil service I spent time working both in banking and in retail – of which I had a fairly miserable time in both. Ultimately I found out that I was not cut out to sell stuff – in particular stuff that I didn’t really rate myself. As it turns out, the job that I was doing in banking – which was primarily data processing and data input – has since been made obsolete by firms being able to do half the job themselves, with computerisation and automation taking over the other half. Working in retail was – like for many a shop-floor worker – a means of making ends meet. I don’t begrudge or look down on those who work on the shop floor front line in retail; I’ve been there myself. Retail managers and decision-makers on the other hand are fair game – that’s my take.

But in the world of banking, who are the decision-makers? How many times have you gone into a bank and have been referred to a call centre or have been told that ‘the computer says ‘no’ due to some artificial arbitrary boundaries put on by someone or something else? Is it your bank manager? If not, then who is it? This is one of the questions that many-a small business may well have asked too.

The thing is, if a civil servant (such as the type I used to be) is less likely to make decisions suited to local people due to a lack of knowledge of local circumstances and local issues, does the same apply to banks when it comes to their lending decisions? Is there something to be said for throwing off the chains of centralised decision-making when it comes to lending to business and people?

It’s not just in terms of when to lend to people and businesses – it’s also when NOT to lend. How many of us have received letters from our credit card companies telling us that they are increasing our credit limits without having first being consulted? How many of us can name the person in our banks who we regularly speak to to discuss our finances? How many of us regularly speak to anyone in our banks about our finances? (Is it then any wonder that the consumer debt bubble has expanded to the size it currently is?)

Amongst the many problems there are out there is that branches – and the staff within them cost money. The rise of internet banking has also taken away much of the ‘process’ related functions within banks that used to be done by people such as myself all those years ago. Yet in terms of decision-making – and it is the day-to-day decision-making actions of banks that have a significant impact on the country’s economic activity, there must be a role for improving the ‘intelligence’ that banks have on their personal and business customers. By ‘intelligence’ I’m not talking spying and conspiracy theories, I’m talking about what both data (e.g. spending patterns, overdrafts, income for personal customers and revenue, expenditure and investments for business customers) and the ‘qualitative information’ can provide to decision-makers.

Let’s take the new enterprise zones policy of the Coalition. I’m going to pick on Harlow as an example on the grounds that it’s down the road from me in Cambridge, was an area I visited during my civil service days, and because the local MP (Robert Halfon – Conservative) happens to be one of Puffles’ followers. I’m not going to debate the merits or otherwise of the policy itself – rather the delivery issues that may help make or break the activities in this specific area. The challenge for the banks that have branches and business advisers in Harlow is whether they have properly empowered their staff on the ground to make the lending decisions needed to support enterprise in that area.

  • Who are the people who both set the overall parameters for lending decisions by banks for businesses in Harlow,
  • who are the individuals within the banks that make the day-to-day judgement calls on lending decisions?
  • What are the systems and processes that the banks have in place for to ensure that businesses that have received loans/funds from banks are properly supported in these tough economic times?
  • Are the banks content that their staff are properly trained and competent to carry out the important roles that they find themselves responsible for?

I would be interested to know with these enterprise zones whether any of the banks – in particular those that have taxpayers’ money invested in them – have taken the plunge of ‘localising’ the decision-making of lending decisions to their staff on the ground without the need for referrals back to head office – and publicising said decisions. (It would also be interesting to see whether any research is being done to find out what the success rate of this approach is compared to more centralised approaches).  The data from that research could be quite ground-breaking. 

This post asks far more questions than in answers – in part because it’s been years since I’ve worked in banking. However, I’m particularly interested in the comments that come from politicians with experience/expertise in finance and banking and finance people with an interest in politics.

2 thoughts on “Localism for banking?

  1. I would be very surprised indeed to find any of the big banks allowing local decision-making regarding lending. This has not been the case for a number of years and bank managers really have very little power. The rot set in in the 1980s when Midland (now HSBC) turned its branches into sales offices, centralised much of its back office processing and made lending decisions the responsibility of credit control departments far removed from the customer. All the other banks followed suit, and now it is hard to find a bank manager that can make his/her own lending decisions – even over the simple matter of a business overdraft. My bank manager did manage to get through a temporary extension to my overdraft one Christmas a couple of years ago, but they caught up with him quick, moved him to another branch and no manager at my branch has been able to do that since.

    Centralisation of lending decision-making is AWFUL for small businesses, for whom the local relationship with a bank manager who knows their business well and to some extent acts as their advisor is really important. Many small businesses go under on cashflow because of the lack of working capital finance: banks don’t seem to distinguish between working capital finance and loans for business expansion when it comes to lending decisions, which is totally bizarre. Trying to run a business like mine, which suffers seasonal peaks and troughs, with no working capital finance is a nightmare: I end up borrowing from friends, family (even sometimes my children) to fund troughs because the bank won’t extend credit facilities even though I have confirmed future cash flows. I find it particularly amazing that banks are so tough about working capital finance for small businesses. After all, they know only too well what the effect of liquidity problems is, don’t they? Except of course that they can expect the Bank of England to bail them out. If only they would do that for small businesses.

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