That’s Bank of Essex, not Bank of England.
The public sector in Essex has come together in a unique move to announce a series of proposals designed to support Essex families and businesses struggling in the current economic downturn.
The key proposals include:
1. Creation of a ‘Bank of Essex’, a special delivery vehicle to act as an intermediary and release European Investment Bank (EIB) funds for local SMEs. EIB allocates around EUR30 billion to support SMEs and establish a competitive, innovative and knowledge-based economy. Funds are made available through intermediary banks in the form of lines of credit or indirect loans. This could be linked with the development of Foundation East, a community finance initiative providing high-risk, small business loans of up to £20,000.
The Sunday Times reports:
The proposed Bank of Essex comes as an influential backbench MP is lobbying the Financial Services Authority to set up a network of similar “community banks” to help channel funds to small firms.
This is not likely to be a good idea. Consider the “German experience”. Squeezed by larger, more stable and financially successful rivals, smaller and mid-size regional banks were the ones that found themselves setting up SIVs and ABCP conduits or else investing in high yielding MBS paper from the US to maintain a competitive advantage. A network of fiscally conservative UK “regional banks” would be a viable proposition so long as yields remain relatively high, but the moment the next boom begins, margins will be squeezed and those banks will end up just as their German cousins did: taking state subsidies or else taking bigger risks.
Related links
Essex council plans to open own bank – FT