The leader of Birmingham City Council has unveiled a proposal for the city council to set up its own municipal bank, to offer loans and banking services direct to the local economy.

Speaking at a Birmingham Prospectus Breakfast Briefing, Cllr Mike Whitby said: ‘Birmingham has a long tradition of innovation in Municipal government. We once ran a Municipal bank, and given the recent market failings, I think the time might be right for us to do so again.

‘The credit crunch has put intolerable pressure on many small yet sound businesses, people trying to get on the property ladder and those seeking to invest in the city.

‘I have asked officers to look at a range of proposals as to how this could operate in reality.'

Options under consideration include:

  • Using the imminent re-tendering of the council’s banking contract to establish a Bank of Birmingham dedicated to serving the people of the city
  • Using the council’s access to financial markets and its well-being powers to provide asset backed finance to businesses in the city and those who want to invest here
  • Seeking partners to intervene in the local mortgage market to help bring stability
  • Further proposals under consideration include an option which would see the council buy physical assets for local businesses and lease them back to them.
  • This ‘reverse-style PFI’ would provide the business with operating capital and security of tenure, while enabling the council to use the asset as security against which to increase its Prudential Borrowing.