THE BLOG
18/11/2013 06:18 GMT | Updated 23/01/2014 18:58 GMT

Is There a Future for Regional Banks?

In June of this year, Guy Opperman, Conservative MP for Hexham and a passionate advocate of regional banking, and I held an event in Newcastle to look at the future for regional banking. Our keynote speaker was Greg Clark, then Financial Secretary to the Treasury, who spoke of his commitment to the creation of regional banks. Over 150 individuals made their way to Newcastle to take part, including individuals and groups interested in setting up new banks.

At the same event representatives from the Financial Conduct Authority and the Prudential Regulatory Authority announced the significant regulatory changes they have made to simplify and shorten the authorisation process for new bank entrants as well as reduce the amount of capital they must hold, two of the biggest obstacles facing those looking to set up new banks. Both the processes and attitudes have changed dramatically since I spent almost two years on the authorisation of Metro Bank which, at the time the granting of its banking licence in March 2010, was the first new authorisation in over 100 years.

In March the Treasury launched a review of Payments that will, in all likelihood, result in a payments regulator, a 'Paywat', that will ensure new entrants have fair access to the payments system, currently owned by the big banks and accessed through them, removing the last regulatory hurdle for aspiring bank entrants.

And it is easy to see why the Government, the regulator and the Treasury are so keen on regional banks. The UK is unique in its concentration of banking. In Germany 67% of banks are regional, 57% in Japan and 34% in the US. In the UK it is 3%. Businesses and Consumers have fewer places to bank, and less credit available to them.

The number of bank branches throughout the UK continues to decline. Unpublished official figures, obtained by The Telegraph, show the total UK branch network fell to 11,365 by December 2012, from 11,713 a year earlier.

Overall, there are 1,060 fewer bank and building society branches than in 2007. (Building societies closures represent a small proportion of the total, shutting 119 during that time).

Data from the Bank of England and the New Economics Foundation show that credit for corporates and households (excluding unsecured personal loans) has fallen by over 20% from June 2008 to December 2012.

So are we going to see a surge of new regional banks?

That is, of course, how the banking (and building society movement) started. Groups of civic-minded individuals, like the 'Rochdale pioneers' coming together to enrich their local community. However I believe that, in the 21st century, it is much more likely that the new entrants will be regionally -based banks rather than regional banks. It is a small, but important, distinction.

There are strong economic reasons for locating banks regionally. Headquartering and staffing banks is around 20% less expensive than London. However research by European Financial Marketing Association predicts that up to 60% of all banking transactions will be via a mobile device. Add that to internet banking and geography no longer matters in banking.

First Direct, owned by HSBC and based in Leeds has already proved that. It provides national banking via telephone, internet and mobile, and has the highest customer satisfaction scores of any big bank in the UK.

However, post the banking crisis, some customers still want their banks to have some physical presence, although, increasingly customers are happy to do all of their banking remotely. I believe that we shall see a resurgence of banks, based in regions, providing local employment and credit, but using telephone, internet and mobile technology to extend their reach nationally.

Mr Clark (originally from Hartlepool) may soon be able to access a North East bank via his desk top computer or his 'phone whilst sitting in his office in Westminster.

Anthony Thomson is the founder and former chairman of Metro Bank which, when it opened in July 2010, was the first new High Street Bank in the UK for over 100 years.