Warrington Borough Council has approved plans to invest £30m to create a joint venture challenger bank.
The authority’s executive board this week approved proposals to take a 33% share in the bank, which is aimed at boosting investment in small and medium sized businesses in the town and beyond.
The new joint venture, to be named Redwood Bank, will enable the council to help more businesses than by authorising loans directly, according to Lynton Green, director of finance and information services at Warrington Borough Council.
He told Room151: “By running a bank you are able to take deposits from local businesses and get a gearing effect.
“For every £10m investment, the bank might be able to make £50m of loans – making a bigger impact for a smaller investment.”
The council will form a partnership with Acorn Financial Partners, a new venture which has already applied to the Financial Conduct Authority and the Prudential Regulation Authority for authorisation.
On authorisation, the joint venture will have a northern regional office based in Warrington.
Jonathan Rowland, one of the founders of Acorn, said: “The major banks have not returned to anywhere near their pre-crisis business lending levels and the uncertainty caused by Brexit is likely to worsen the situation.
“At the same time, SMEs have shown a strong appetite for new market entrants offering competitive rates and superior customer service.
“Against this backdrop, we have a compelling opportunity to build a secure, robust and profitable bank.”
Green said that the bank will be lighter on its feet than its high street rivals, enabling it to offer competitive lending rates.
He said: “It is not so much about the risk assessment for individual businesses. It is about the speed of operation and decision-making. We will have low operating costs with a state of the art system.”
A secondary reason for setting up the bank is to allow surpluses to be invested in council services, Green said.
The council could also sell its share of the bank in future years, “generating a large investment return to the council”, according to documents provided to councillors.
Green said that Warrington has been influenced by the structure of Cambridge and Counties Bank, established in 2012 as a joint venture between University of Cambridge’s Trinity Hall and Cambridgeshire pension fund.
Other councils, including Manchester City Council, Birmingham City Council and St Helens Council have set up mechanisms to directly lend to SMEs without applying for a banking license.
Green said that the set-up costs of the bank will be paid by Acorn and not result in any liabilities for the council other than its £30m stake.
