Small businesses hit by shift in banking: Closure of branches 'has devastating effect' on poor areas

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THE MOVE of the clearing banks away from local branches has had a devastating effect on small businesses and poorer rural and inner-city communities, according to a new study.

The closure of 1,000 branches over the last four years is driving vulnerable householders into the hands of money-lenders and pawn-brokers. More than 28 per cent of the population of Birmingham either have no access to local banking services or are on the verge of losing it.

Small businesses have suffered disproportionately through higher charges and abrupt withdrawal of overdraft and loan facilities. In 1990 interest rates for small businesses rose by 66 per cent. The report says the banks took an extra pounds 2bn in charges from personal and small business customers between 1989 and 1992.

According to BankWatch, from the New Economics Foundation, a green research group, the banking system is now 'deeply out of social control'. It says that unless the clearing banks revive 'human-scale banking', they are likely to be outflanked by new types of co-operative and community banks, such as credit unions.

The report, based on contributions from organisations including the National Consumer Council and Warwick University Institute for Employment Research, points out that the demise of personal banking has been accompanied by a crash in consumer satisfaction with the banks.

It blames deregulation in the 1980s, which enabled banks to offer a range of services, for many of the problems. It increased marginal cost competitiveness, which helped to accelerate social disinvestment.

The disappearance of banks from many high streets has pushed thousands of people into the hands of money lenders who charge interest rates ranging from 60 per cent to over 5,000 per cent.

Banks are also penalising householders without bank accounts. Charges for counter transactions in cash, such as payment of bills, have increased by a factor of four or five in recent years, from 75p to more than pounds 3.

Despite a statement from the banks last year that environmental protection 'must rank among the highest priorities of banking,' green issues are routinely ignored when making loans, it adds.

Bankwatch UK National Report; NEF, 88-94 Wentworth Street, London E1 7SE; price pounds 7.