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New Economics Foundation: Loons on the Loose

THE new economics foundation (they’re so green and hip that they think there’s a shortage of capital letters) has decided that British banking is broken and that we really ought to all go and adopt the German system.

Local banking works. The experience of other countries that have thriving local banking sectors, including the US, Germany and Switzerland, has demonstrated that smaller, locally focused institutions are the ones that provide economic resilience.

Germany in particular provides an excellent case study of a different way of doing things. Once considered plodding and underperforming compared with swashbuckling British banks led by the likes of Fred Goodwin, the humble German savings banks, or sparkassen, have been quietly showing their mettle since the financial crisis began.

There are 430 of these banks, each of which is focused on serving its local area. They are public interest institutions with explicit social as well as economic objectives. They are prudently managed, but also will back new business ventures and stay with customers for the long term. Lending decisions are not made by computers, or sent to some remote regional office. Your branch manager has the authority to back his or her judgment.

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Posted: 7th, December 2011 | In: Money | Comment