A group of Cambridge entrepreneurs and businessmen are so outraged by the behaviour of the banks that they are setting up their own.
Telecoms guru Dr David Cleevely said: "We are sick to death of the way the banks are operating. They are offering people almost nothing for deposits but charging small businesses up to 15 per cent for their credit facilities. There is something fundamentally wrong." Dr Cleevely, the founder of Cambridge Wireless and Abcam, the world's biggest catalogue for antibodies, is working with a number of businessmen on plans for a bank serving depositors and commerce.
"Quite apart from the social issues, there is an arbitrage opportunity here to set up a bank because of the huge disparity between borrowing and lending," Dr Cleevely said. "Talk of their being no money around is nonsense. There is tons of money but no one wants to put it in the banks earning next to nothing."
Other businessmen involved include Nigel Brown of NW Brown, the Cambridge-based corporate financial house, and Dr Alan Goodman, a biotech entrepreneur who has founded more than 30 companies. Early talks have been held with Cambridge University and Cambridge City Council.
Dr Cleevely said they are looking at a vehicle known as the Industrial Provident Society, which is regulated by the Financial Services Authority, to use as the mechanism for the bank. This needs a minimum threshold of €2m (£1.8m)capital and allows its members to lend and take deposits: "I see a renaissance of the mutual societies and co-operatives which we saw in the 19th century." The entrepreneur added that fury is growing around the country over the behaviour of the banks and how they have failed their customers. "There is no doubt in my mind that the way the bankers were rewarded has led to their reckless lending. "Big fat salaries distorted the risk and led them to take risks they shouldn't. We need to change this and it could be that commercial and investment banking must be separated by law."
The Cambridge group has been in contact with the Treasury over the project. They have also expressed their dismay that the Small Loan Guarantee Scheme is not working properly.