Councils may set up own banks

Councils are considering setting up their own local banks to bridge the funding gap caused by the credit crunch.

Local authorities in Essex and Birmingham are proposing to establish municipal banks to offer loans and banking services to firms and consumers in their areas.

Essex County Council is hoping to raise up to 50m to fund loans for local businesses while Birmingham City Council is considering intervening in the local mortgage market either via a direct lending arm or through partnerships with Birmingham-based lenders.

Councillor Mike Whitby, leader of Birmingham City Council, says: “The credit crunch has put intolerable pressure on small but sound businesses, clients trying to get on the property ladder and those seeking to invest in the city.”

Richard Kuzminski, proprietor of Birmingham-based Mortgages Fullstop, says: “This idea sounds a little strange but if it addresses the problem of the lack of first-time buyers, I’m all for it.”