To Follow – this paper will be up-loaded when it has been published on 23.11.2020 for Cabinet.
The Director of Finance introduced the report to Members and explained that the report provided a progress update on the establishment of Avon Mutual a Community Bank for the region. The report sought approval from Cabinet for the Council to make a further investment in development shares that would support the proposition through the next stage of its development.
It was highlighted that the report would be going to Cabinet the following day.
Members were reminded that in July 2019 Cabinet recommended initial founder investment of £100,000 and then also another £50,000 to enable officers to some detailed due diligence on the banking model. This was now the second round of potential investment of to take it through to the final stage. The key point was that the Council was looking to invest approx. £200,000.
The following points were discussed:
· One member said they fully understood and commended the good intentions of the bank but said from experience this was a dangerous area with mine field everywhere. He did not want this to be the next Bristol Energy Company where money was sucked in. He said it needed to be clear with any investment such as this that there are no indemnities, or anything hidden. His view was therefore one of caution. Officers said that none of the funding so far had any additional liabilities but yes, the note of caution was well understood.
· Another member commented that some of what had been said had caused alarm bells to ring for him but that he still needed to look at the exempt Due Diligence report that had been provided to Members in detail. He also asked about whether the payments should be viewed as ‘grants’ as they had been referred to at times. Officers said yes from a financial perspective the Council was viewing them as ‘economic grants’.
· The Chair commented that he thought the charges for the current accounts were relatively high compared to other banks. He also asked about potential branches and said there seemed to be a lot of them. Officers said there will be different types of branches established and that promoters were looking at differential pricing models for the accounts to negate the impact on the most vulnerable.
· The Chair added that he did support the model but that also heard the caution that some others were expressing.
· Another Member said it was his understanding that this type of banking model was common in the EU just not here in the UK and in his view although the Council needed to tread carefully it was very important that it went down this road.
· Another Member commented that he supported the measures to reduce financial exclusion, but he was slightly concerned about opening branches when others were rapidly closing them on the high streets. He also raised a point about ‘cash’ and access to cash and said that Covid had changed the patterns of how people pay for things i.e. the use of cash had dropped considerably and it was important for this enterprise to be at the forefront of these changes.
· Members asked if branches were now an old-fashioned model? Was there an issue of what it was trying to be or what people actual need? Officers said that with regards to the bank branches some will be satellite branches and some staffed branches but the details were yet be decided.
· A Member who said that he had briefly read the Due Diligence Report (DDR) said ‘alarm bells were ringing’ because it appeared to be full of caveats and disappointingly it hadn’t told him anything that didn’t he already expect it to say. He thought the concept of the bank would be good for small business and in areas of high deprivation where it could provide opportunities that people would not have had before. But it didn’t explain what the commitment was beyond this stage and said very little about the risks. He asked where the funding would come from if the £20m target wasn’t reached. Would the Council be asked to contribute again and was there a bottom line? Officers said in terms of the DDR there was a need for this to be undertaken independently and needed for a credible contract to review and provide clear details of robustness of the model. In terms of the commitment there is no obligation for anything further than was has been detailed in the report but yes it was correct to assume that local authorities will be asked if they had an appetite for additional investment.
· The Member who said they would look at the exempt DDR said that he had now looked at it and he did not support it and thought it should not be approved the following day. When asked by other Members asked to provide an explanation of why he had come to this conclusion without breaking any confidences he said it was mainly the bad dept assumptions. Officers said the report needed to be read in full because bad debt assumptions were covered in the report in detail and the assumptions had been stressed-tested.
The Chair said the Commission had a choice as to whether they decided to include the concerns that some Members had expressed in the statement to Cabinet. A straw poll was taken which showed that half of the Members present did want to have their concerns noted in the statement. The Chair agreed to draft a statement up that basis and send it to the other Members for their consideration the following day.
That a note would be added to the Commissions statement to Cabinet to say that some Members expressed concern of the levels of financial risk they believed the Council was potentially opening itself up to in the future.