The structure and relations of banking systems: the UK experience and the challenges of ‘levelling-up’

A decentralized banking system is marked by geographical dispersion of banks with close proximity of banks to their borrowers and strong long-term relationships between banks and their borrowers based on soft, tacit, as well as hard, codified information. It is important for promoting the development of small and medium-sized enterprises (SMEs) particularly in regional locations. In contrast, the UK has a highly centralized, concentrated banking system with weak relationships between banks and their borrowers. This has contributed to the high degree of regional disparity across the UK. The programme of ‘levelling up’ regions will require a more decentralized banking system. The cases of Germany, the US, and the Swedish bank Handelsbanken illustrate the advantages of decentralized banking. They also have important lessons for the way in which decentralized banking systems should be structured and organized and, in particular, for the regulatory arrangements that are conducive to their satisfactory functioning and avoidance of pitfalls to which they can otherwise be prone