A year after the almost total collapse of the world’s banking system Essex County Council has agreed to establish a new municipal bank, called Banking on Essex. http://www.essexcc.gov.uk/vip8/ecc/ECCWebsite/dis/guc.jsp?channelOid=14008&guideOid=129449&guideContentOid=130843 UNISON will need to keep watchful eye on staff pension fund.
One immediately wonders if the executives of Lehman Brothers are being headhunted to staff it at this point?
The council believes that it can satisfy the funding needs of local businesses that they claim the big banks are currently failing to do. The bank is being created under powers which councils have to promote the economic well-being of their area.
The initiative will work in partnership with banking giant Santander, making it the first council-run bank for more than 30 years. But hardly a local partnership then as Santander isn't just the biggest bank in Spain it is the largest financial services company in mainland Europe.
At the end of last year it was the fifth largest bank in the world in terms of the
profits it generates and it could climb higher next year, given the fact that many banks are struggling to generate profits at all.
While most commentators seem to think local banks are a good idea, no one seems to have questioned what would happen if something goes wrong with the Bank of Essex or whether the temptation to over lend or experiment in more risky ventures can be controlled.
Remember all those who turned a blind eye to the banking sector’s profits before the crash!
To fund the bank the council is using £50m for loans from its cash balances of up to £100,000 for small and medium-sized businesses which have been trading for at least a year.
As members’ may know Local Government Pension Scheme cash is not legally separate from the council’s who run the pension funds, Essex is one of those. Not only that but it is illegal for an employer to borrow cash from their pension fund.
Proposals by East Sussex County Council to use money from its pension fund to establish a bank surfaced in May this year.
So…if Essex or any other local authority borrows our pension fund cash to establish a bank that is a criminal offence, with imprisonment an option on conviction.
At present Essex have given assurances that none of the £50m put up to lend to local businesses is pension fund money, but UNISON will be keeping a watchful eye on Essex and any other authority seeking to do the same.
