COUNCIL leaders in Essex are used to their county being the butt of jokes about white-stilletoed girls dancing round their hand-bags. Now, after deciding Britain’s banks have been making a joke of Essex businessmen, the council has come up with a pioneering plan to create its own bank.

Plans to create the Bank of Essex have been drafted by Essex county council in response to complaints from local firms, who accuse high-street banks of taking lending decisions away from local branch managers to remote credit committees.

The proposed bank comes as an influential backbench MP is lobbying the Financial Services Authority (FSA), the City watchdog, to set up a network of similar “community banks” to help channel funds to small businesses.

“The situation in Essex for the next year does not look good,” said Lord Hanningfield, the leader of Essex county council. “If the banks won’t help our local businesses, someone has to.”

The idea of a county bank was partly inspired by the successful lending models of small regional banks in the US, including its namesake across the Atlantic, he said. “We have close links with the US through Essex’s links with the Founding Fathers. The Bank of Essex in Virginia is one example of a successful, small-scale community lender that we can learn from.”

The government is working on a number of plans designed to kick-start lending to the real economy.

One proposal being considered would see the government help Britain’s banks sell some of their corporate loans to institutional investors, freeing up their balance sheets to offer more loans to businesses and households. The government would offer guarantees on covered bonds containing corporate debt in an effort to persuade institutions to invest.

The proposed Bank of Essex would channel emergency funds being made available from the European Investment Bank directly to businesses in trouble – bypassing Britain’s high-street banks.

Colin Breed, the Liberal Democrat MP who sits on the Treasury committee, is working on a more radical plan. In meetings with the FSA last week, he pushed for the creation of new community banks that would be mutually owned for the benefit of local communities.

“The big banks have become so big over the years that there has been too much power in too few hands,” said Breed.

“These would be small institutions that would make local decisions for local communities.”

Breed has proposed dividing the country into a series of regions which would each be allocated a community-banking licence that could be auctioned off to consortiums. Local authorities, pension funds and institutional investors could all supply capital that would form the equity base of the new banks. The new banks could also be run by existing credit unions, under Breed’s proposals.

The idea flies in the face of the FSA’s thinking, which has been encouraging existing building societies and other mutuals to merge.

The proposals join a growing list of initiatives being launched to help small firms being refused lending and in many cases having their overdrafts slashed by risk-averse high-street lenders.

England’s regional development agencies are setting up emergency loans worth £24m to help firms trade through difficult times. The first scheme in the West Midlands has been overwhelmed by requests from more than 200 firms to borrow sums of up to £250,000.

Stephen Alambritis of the Federation of Small Businesses urged the government to move as fast as possible to finalise the £1 billion Small Business Finance Scheme announced in the pre-budget report in order to restore lending to firms in need.

“We have been inundated with calls from businesses asking about the £1 billion of new lending,” he said.

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