National investment banks
State-backed investment banks exist to provide finance where private banks may be reluctant to do so – in disadvantaged regions, new technologies or in sectors where returns are not considered high enough or too risky.
They are particularly valuable for providing 'patient' capital. This is long-term finance that is beyond the time horizon of most commercial banking but which is essential for innovation and strategic economic development. In very different circumstances, China and Germany both provide evidence.
The UK is unique among major advanced economies in not having a national investment bank. Its advocates argue that such a bank would increase investment in innovation and meeting major mission-focused industrial transformations, such as building a green economy. The depth of the economic crisis caused by Covid-19, and its potential impacts on private finance, has added new urgency to these proposals.
Scottish National Investment Bank
The bank's mandate is to finance investment to realise Scottish economic priorities, including a greener economy. Some claim its mandate is not tight enough and it should be more deliberately focused on helping Scotland respond to environmental breakdown and supporting ethical investment.
Local and regional banking
Geographically-focused banks can play a major role in boosting investment, particularly in disadvantaged areas. They can help to retain wealth within local areas and support greater economic resilience. Distinct from merely the local branch of a high street bank, there are two types of such bank.
The first are localised branches of publicly-owned national investment banks, with a specific remit to support the investment needs of local areas. In the UK it has been proposed that this could be done by creating publicly-owned Post Banks through the Post Office network, or by the government retaining its stake in the Royal Bank of Scotland (RBS) and repurposing it as a series of local banks.
An alternative model would see the expansion of locally-focused cooperative, credit union and community finance organisations. Such institutions have a greater emphasis on high-street and branch banking and excel at lending to smaller businesses.
There is a growing movement to create a network of regionally owned and controlled mutual banks, where customers automatically become co-owners.