Public sector banks fail to take off

Just one out of four public sector banks proposed to help small businesses survive the credit crunch has got off the ground, the Financial Times has reported.

Only Essex County Council has so far set up a scheme, entering a joint venture with Abbey National called Banking on Essex. The other three councils that looked into launching a municipal bank – Birmingham City Council, Liverpool City Council and Ceredigion County Council – have yet to set one up.

The FT report added that the Essex scheme, which was planning to provide £30m in credit initially, had only lent £263,000 to eight businesses. However, a spokeswoman for the council insisted that a large number of applications were pending decisions.

The paper also reported that Birmingham had ditched the idea because the start-up costs would be prohibitive and the lending might only start before the recession was over. Ceredigion said a feasibility study suggested the bank would only work across a much wider area. The council responsible for producing a feasibility study into a Merseyside public bank, Wirral Council, admitted that “no actual progress has been made”.

“The overall impression is that councils have discovered banking is harder than it looks,” the FT concluded.