The latest report from the Public Policy Institute for Wales brings together evidence on the effectiveness and viability of a full public bank in Wales. Debates surrounding this issue have been taking place between political parties in Wales for some time. The report examines what is meant by the term ‘public bank’, how such banks can be financed, whether they can stimulate small business lending and/or local economic development, and the potential role the Welsh Government could play in establishing them.
The report argues that there are problems in the Welsh banking sector and wider economy that a public development bank could help to alleviate. There appears to be a lending problem, and the nature of the current banking system exacerbates this. Lending decisions made away from local areas are less likely to favour SMEs. A public bank or network of community banks with an explicit regional objective could help boost SME lending and regional economic development.
However, setting up a public development bank, in any form, is not easy. The report highlights evidence from around the world of differing experiences of public banking. Good governance is crucial to prevent overreach and excessive political interference, and to stop them from being bought or sold. In some cases where these arrangements have not been established or maintained, the consequences have been disastrous.
Developing an effective and sustainable banking model in Wales would be a significant undertaking. The Welsh Government could follow and learn from the progress of ongoing public banking projects in the UK. It could also carry out due diligence on each potential public development bank model, considering their transferability to Wales, their commercial viability, and their contribution to the public good.