 Good morning and welcome to the sixth meeting of the Economy, Jobs and Fair Work Committee. First of all, we have a decision on taking items 4 and 6 on the agenda in private. Is the committee agreed to take those items in private? Second item 2 on the agenda is a decision by the committee to consider the draft report on the draft climate change plan in private at future meetings and consideration of an EU research paper and approach paper on its data inquiry and the decision is whether those can be taken in private. Are we agreed that they should be taken in private? Thank you. We have today three witnesses in this session and I welcome them to the committee. First of all, Rodd Ashley, who is chief executive of the Erdrith savings bank. Second, Wendy Dunsmore, who is regional officer of Unite the Union. Third, Professor Charles Munn. I welcome all three of you to the committee this morning and you are here, as you will know, to discuss the decision of the Erdrith savings bank to close. First of all, I invite members of the committee to state any interests that they may have in the matter of the Erdrith savings bank. John Mason. Yes, I declare that I bank with the Erdrith savings bank and virtually all my money is with them. Thank you. The matter will proceed by committee members putting questions to the witnesses and, if you wish to come in on any question, please simply indicate by raising your hand. No need to work the microphones, that is dealt with by the sound desk, so if committee members could keep questions succinct and witnesses perhaps also bear that in mind and also the fact that you do not have to answer every question. First of all, I have a question for Rod Ashleigh and that is about the background of the decision to close the Erdrith savings bank. Really what I am interested in is the procedure that was followed in coming to that decision, first of all. It is just that members of the public may not understand how it works, so it might be helpful to start off with some explanation of that. Would you be familiar with the corporate structure of the bank? I am happy for you to give a very quick summary of that. The bank is in fact a savings bank under the 1819 act. It has trustees, so it is not a corporate structure as we would expect. In 21st century governance, it is a mutual sector, so I would consider it part of the social enterprise sector, so it is not a normal corporate structure. Having said that, it operates with that kind of normal corporate governance structure in place, with a board, subcommittees and other governance matters that are required under the various acts and under the banking regulation that we have at the moment. In terms of the background to the decision to close the bank, as a normal board, we are always looking strategically at what the options are in relation to our banking structure. We undertook a strategic review of the options for the bank and that led us to the decision that the medium to long-term position for the bank was sufficiently uncertain in order to act in the best interests of the depositors. We would take the decision at this point in time in order to conduct an orderly wind-down of the bank affairs in order that there might be a community benefit at the end of the wind-down process. In the interests of the depositors, can you expand on that? Under the 1819 act, the obligation of the governance and of the trustees is to act in the best interests of the depositors. Therefore, you could have ended up in a situation where the bank may have continued making losses for a number of years to come and there would come a point by which the control of any wind-down would be taken out of the hands of the local community and out of the local trustees and would be handled by the regulators at that point. The bank did not wish that to happen. They wished to retain control of what was happening of the destiny of the bank and therefore the best interests of the depositors. You say that you continue making losses. Was it the case that the bank was making losses at this stage? Yes. The decision was taken by the board of trustees. Is that correct? That's correct. Did the board of trustees have to run that decision by anyone? Are they accountable to anyone in particular? The board of trustees internally are not accountable to anyone, but a modern bank runs hand-in-hand with the regulators. Both the Prudential Regulation Authority and the Financial Conduct Authority were aware of what the board decision was going to be and knew that that was going in that direction. Professor Munn, do you have any comment on that at this stage? Just one point or two points. One is to note that the trustees are not remunerated, be that still the case? Yes. They are volunteers. The second point is that there has been—I should explain—I wrote the history of the Airdrie Sames Bank to celebrate its 175th anniversary seven years ago. The bank has a long tradition, of course, but there is a long history, too, of dealing with regulators. It has not always been a happy experience, largely because the Airdrie Sames Bank for the last 40 years or so has been unique. It has been quite awkward at times for regulators in London, whether it was the Bank of England or the Financial Services Authority, to understand what it was that they were dealing with. The book tells a story that I will not elaborate, but it is simply to say that there have been quite challenging times. For example, when regulators in London at one period asked the Airdrie Sames Bank for a full detailed statement on its international exposures, apart from selling the occasional traveller's chech, it did not have any. What is the full title of your book for those who may be interested? It is simply called Airdrie Sames Bank, a history, and it is available from the bank. I think that you are so good. I can confirm that we still have copies of the book. Thank you very much for that. No doubt we will bring Wendy Dunsmore in on relevant questions as we come to issues that touch on your remit, but I will pass now to Richard Leonard to ask some further questions. Professor Munn alluded to the long view, and there are some people who would ask the question why, if the bank can survive two world wars and the great crash of 1929, does it find itself at this point in its history facing closure? It has not always been an easy run. There is a notion around it in the minds of some people who have spoken to me about this, who think that running the Airdrie Sames Bank, especially after all the nice things that were said about it at the time of the crisis, has always been an easy ride. There have been many, many challenges for it. In the 1970s, for example, there was almost the opposite challenge of the one that exists now. When inflation was very high and interest rates were high, now we have got the exact opposite, and as I think it says in the book someplace, the margin between lending and borrowing rates is so narrow now that it is difficult, as Rod has said, for the bank to make enough of a surplus to pay its way. I understand that that is one of the reasons that lies behind. The era of low interest rates is not only penalising savers. It is presumably penalising the model of business that the Airdrie Savings Bank operates through. Mr Asher, could you explain a little bit more about what happens when Mr Mason deposits his money in the bank? What do you do with it and where does it go? I can do. The Airdrie Savings Bank is entirely retail deposit funded. That is our customers. It raises all the deposits and the funds that we use. The traditional model of a savings bank would be that it did not lend any money to customers at all. Again, if I am sure, Charles will not be able to correct me with the dates, but it was only around the mid-1980s that the banks started lending any money to any customers. In fact, QC's opinion had to be obtained before it was possible to ascertain whether that was possible. By the time that I joined the bank, which was in 2013, we were roughly in the position of the deposits that we had. About a third of those were lent out to customers. If you contrast that with many of the other high-street banks where that will be closer to 75 or 80 per cent, we had a third lent to other banks in the form of deposits with other banks. Traditionally and historically, those banks had acted in a fraternal nature towards Airdrie Savings Bank and perhaps had given us a slightly higher rate than might have been afforded elsewhere. That did not happen any more. A third of the other deposits were invested in Government bonds and guilds. Generally, low-risk use of the funds in accordance with the bank practice. Since 2008-2009, two of those thirds have been yielding very little and the other third lending to the customers has been under pressure from the low-interest inflationary position. For a savings bank, it is very difficult to make any money at that return. Certainly, as Mr Mason will concurnod out, it is very difficult to give any return to depositors whatsoever in that environment. Was there any consideration given, or is it possible, within the terms that frame the operation of the bank, whether it is the 18, 19 act or subsequent legislation? Was there any reason why you could not look at investing Mr Mason and other depositors' money elsewhere, almost like a pension fund might do? Instead of simply putting it in the bank or another bank, could you have looked at other forms of investment vehicles in order to try to increase the yield? The range of investments with which the bank is able to go and certainly within its policies is narrow. Obviously, that depends particularly on risk appetite in relation to that. The bank has always, first and foremost, been a very prudent investment vehicle. As I was saying at the beginning, the trustee's overarching duty of care is to act in the best interests of depositors. The risk profile that we were being prepared to look at there would be low and in keeping with what you would expect the organisation to be. I think that we are going to come in on a point there. It was just about the loss making. Is that purely due to the narrow margin that you are referring to, or has there been any additional cost put placed on the bank since the crash of 2008? It is a combination of two factors. The bank, because of its operating model, has traditionally a very high cost-to-income ratio compared to peers or other banks. Since the period since 2008, we have embarked on a number of cost-cutting measures and income-increasing measures, which the customers have worked with us on to implement them. Some of them are quite unpalatable to them, but they have been loyal to the customer base. We have basically done both there. There is no question that there are additional costs since 2008 that have come along as banking throughout the world and throughout Europe is reformed. There is no question that there is a bigger burden of regulatory compliance than there was previously. There is no real indication that that is reaching a plateau. It changes on a frequent basis as well. I will give you a short example. The financial services compensation scheme limit changed to £75,000 18 months ago, and it has changed back to £85,000, which it was prior to that. A factor completely out with our bank's control and the UK control is my understanding of that. Nevertheless, it is quite an onerous project in both directions for a bank of our size to implement the change to notify customers of the decrease and subsequently to put the position back to where it was. Presumably, in previous years, you had built up a level of reserves so that if there was the odd year when you made a loss, you would be able to make that up from your reserves. How many years have you been running at a loss and how much reserves did you have that would have compensated up for a few future years? The reserves of the bank are correct. The only way that the bank can build up reserves is through retained profits. Over the years that the bank has been in existence, any profits over and above the deposit returned to customers have been invested in the retained reserves. Consequently, for exactly that reason, the board had built up a position of reserves that they were subsequently using over the last number of years as they felt that this was the way that they supported investment back into the community. They were utilising the reserves for that effect, but the reserves have been decreasing and were forecast to continue to decrease. As I was mentioning earlier, they did not want to get to a position where the capital requirements were not being met by them because they would lose control at that point. That is the short answer to your question. I do not know if Professor Munn wanted to come in on any of those questions. I was then going to move to a question from Bill Bowman and then Julian Martin. Just a small point, and that is that following on from what Roderod has just said, the other element of that is the need for future investment in the fabric and in the technology of the bank. That too can only come from accumulated reserves, and if those are not actually accumulating, then it makes the prospect of keeping the bank up to date and its technology and its fabric increasingly difficult. Bill Bowman. You said earlier that it was the trustees that took the decision to have the wind down. Is that correct? Yes, I can clarify that a little bit if you would like me to. I was going to ask the background of the individuals who are trustees. Are they experienced in the financial sector, or did they take, or what external advice did they take on that decision? Let me clarify. The trustees ultimately are the decision taking body. Because of changes again to banking regulations and the fact that we are an old act, the definition of the decision making body within the bank is now that there is a board. The board includes those individuals who are also covered by the senior managers regime, which is from the FCA and the PRA. Sitting if I describe them as board, in addition to the trustee members, are the chairman of the board who is an independent non-executive, the CEO myself and the chief financial officer. The three of us would also be considered as part of the wider board and the decision making process on that basis. We conducted a quite extensive strategic review, which covered a period over 12 months. We were supported at various phases within that with views from outside consultancy agencies on what we were looking for before we arrived at the conclusion that we did. May I ask what outside consultancy agencies you relied on? We work quite closely with the big four accountancy firms. The audit firm is Deloitte, for example, for the bank, but we also have a relationship with the other accountancy consultancies. Did you take advice from banking experts of whatever sort, apart from the accountants that you referred to? I think that the answer to that is yes, because the bank is involved in various forum and groups through myself and other members, where we took judgment and discussion about a number of the strategic options that we were looking at. We have also discussed the position with the Scottish Government, which has been cited on what we have been doing for the last couple of years and we have been up having meetings here. Can I jump back to Mr Bowman's question? I just remembered that I did not answer the second part of your question, which was the skills and qualifications of the other board members. On that, you have a number of bankers. Traditionally, you would have had the local townspeople who would be the trustees, but increasingly now we have people with a banking background sitting on the board of trustees. For example, I have a couple of lawyers. We have accountants there with background in banking knowledge. I have a chief risk officer as well. There is quite a strong level of banking and financial services awareness on the board and within the trustee group. Gillian Martin. I cannot have been alone in feeling very disappointed when I heard the news that you were going to close. I think that a lot of people in Scotland who looked to the air to save as bank to be an alternative to mainstream banking would have shared my thoughts there. I want to pick up something that Professor Munn said about modernisation. I want to note to which extent the inability to modernise to the extent of internet banking and providing a more cashless service had an impact on your decision. What you did to get assistance from agencies such as Scottish Enterprise and Scottish Government, your local authority, to assist you in modernising and how that perhaps did not come to fruition? The traditional offering from the bank at the moment is and has been very branch based. In around 2010, I think, they implemented an internet banking offering, developed that and added it on. This was particularly useful for the business banking customers who were looking for that. Obviously, since 2010 everything has moved on, the digital age has arrived with even more force. Our offering is behind that curve. The investigation has done into the investment levels that would be required in order to move us forward with that. We are going to be outwith the capabilities of the bank given its retained reserves position and the investment that we would need to have on that kind of basis. In terms of the discussions that we have had, we are an account managed firm with Scottish Enterprise, who we worked closely with for a number of introductory contacts following our meetings up here at Holyrood. One of the strategic areas that we looked in was diversification of product offering for the bank to try and spread the products that we had there. Scottish Enterprise was able to offer us some support in that capacity through contribution towards specific project employment costs in order to get to specific projects that we undertook with them under way. Given that I know that people have turned to the Erdie Savings Bank when they have lost faith in the commercial banking sector, for example, around a bit of the crash after the Scottish Independence referendum, I know that you had a surge in people wanting to bank to you as well. Did you feel at the time when you had those people coming to you that you were limiting the amount of people that could come to you because you were unable to modernise? Was that a factor? Were you unable to grow or did you not want to particularly grow? I didn't get a sense that there was anyone who wanted to join us that was unable to join us. Potentially there was a slight mismatch between perhaps expectation of thought that might exist in terms of banking services for some of the customers who were coming to us and what the actual reality of the situation was in terms of at the time we had eight branches decreased down to three. We didn't have mobile banking apps. Our current account service cost £5 a month unlike a number of other banks. However, I think that anyone who wanted to come and certainly who spoke to me about coming to join us for the reasons that they were welcomed in and were unable to open accounts with us. Jackie Baillie I'm curious to know the extent of your contact with the Scottish Government. Who did you meet? What was your ask of them? Jackie Baillie, I don't have my notes of the meeting with me, but we were up. We met Mr Swinney while that was within his brief. Our local MSP is Alec Neil. Now Richard is also one of our local MSPs. We had two or three committee meetings around that where they were able to direct and push us in the direction of a number of contacts, which I then subsequently followed up on various meetings through Scottish Enterprise, Scottish Investment Bank and Green Investment Bank. Those kinds of contacts that we were put in touch with to see if there were areas that we could, principally, we were looking to see if there were other areas that we could lend into in that regard. Did that achieve any outcome? I think I would say that it was moderately successful. One of the challenges that we certainly came up against was that, in reality, for a lot of the SME lending, we were really very small, and our maximum lend was potentially smaller than the number of projects that we were looking at there. It was also taking us into areas that were very interesting and important, but not areas that we had a particular skillset involved. We were looking at developing and who we might work with in that area. A particular area that we did launch the project was with social enterprises. We established a relationship with the SCRT, Scottish Community Reinvestment Trust, which was supported through Scottish Government to try and make Avery Savings Bank at least one of the main banks that would be thought of when the social enterprise was looking at banking facilities. How much did that result in terms of increased lending? That did result in some increased lending, but as you know, the wheels turn slow air in some ways in that kind of sector as everybody gets together and decides what's going to happen. Then there's a lot of projects that are thought of and potentially don't come to fruition. There's quite a lot of work and we were moving in that area. We did some additional lending, but it wasn't going to be a bank-changing amount of lending that we were able to do. It's helpful to know. Can I turn to staff and to Wendy? I'm obviously keen to know that you have 70 members of staff and the PACE team have been in, but how easy is it going to be to relocate people with very particular skills, given that the banking sector overall appears to be contracting in terms of job numbers? Personally, I think that Avery Savings Bank staff are an absolute catch for every other bank. The reason I'm saying that is that I've worked in the finance sector area for a long time as a Unite officer. Avery Savings Bank's commitment to training for their staff is exceptional compared to every other bank. The proportion of people who have banking degrees or their chartered accounts and all the rest of it is far, far higher than any other bank. If I was TSP Lloyds or anyone like that, I would be hanging about Avery Savings Bank to snap these people up because their talent is incredible. They've got the banking qualifications that no other bank now even actually explore. How many people are you losing just now? Are you losing any just now? To support what Wendy is saying, I am seeing a handful of staff at the moment who have gone out and been successful in obtaining other jobs in the financial services area. We've begun first consultation now and we're just at that stage, 28th April, is the key date for that, isn't it? The bank is actually doing a wind-down and it's properly structured, which is far better than the position we were in in 2009 when everybody was just chasing their tails trying to deal with 40,000 job losses because of mismanagement. For me, that's the shame of the big companies, the big banks, because Avery Savings Bank has become a bit of a victim to their own success because they weren't touched in 2009. They never had the same impact as HBOSP, Lloyds, Royal Bank or any of those individuals. Now they're having this impact for this talented workforce. That's the tragedy of this, not just the last investment bank or the last trustee bank in the UK. The workforce is getting impacted because of that. I have to say that we're now going through a consultation process where there is going to be some staff that are going to be made redundant and build the second half of the second quarter of this year. We're doing that in a very organised way. The one thing that I would also say is that Avery Savings Bank is properly committed to good industrial relations insofar as, if you look at what happened in the years from 2000 onwards, or even probably before that, other banks did away with paying staff for their skills, what they did as they paid staff for what they could sell and miss sell. Avery Savings Bank never went down that road. They rewarded staff every year for the skills that they learned, not for what they've sold and they never were targeted in sales. So they did the proper banking stuff from the 70s and 80s where all the banks were really successful and steady. Avery Savings Bank never lost that ethos and they are now a victim because of that and yet the other banks are still able to meet the customer's needs whatever way you want to wrap that up at selling. Avery Savings Bank's never forced themselves on that and they don't have the products. So if you look at a Bank of Scotland account, if you go into the Bank of Scotland, they're not going to make any money in my deposits, but they're going to make money in my insurance, my credit card and all the rest of it. Avery Savings Bank couldn't give that suite of products to make money out of me. They could only give the basic which doesn't make any money and that's where the impact has really happened. I'm happy to continue, convener, if there is time. That's another brief question. I should also add that the committee would welcome any further information in writing if you feel that you haven't had an opportunity to clarify as you would like and some of the questions obviously you might like to come back on just to fill them out a bit or clarify what you may have said. So please bear that in mind. Professor Munn, a short question from Jackie Baillie and then we'll come to John Mason who's been mentioned already. Can I ask about your customers because obviously the expectations and it was what Wendy touched on, the expectations of the services they would get were different to the rest of the high street banks, but vastly better than credit unions. Was there any consideration given to going back to a more credit union type model where there is a lighter touch in terms of regulation? Yes, actually that was one of the strategic options that we did actually look at. I think it was aspirational. It was appealing in a number of ways. It would have proved quite complicated in order to try and in effect it would have been easier to set up a new credit union potentially and with elements of the bank rather than to try and do a conversion process. And indeed working with the local credit unions and it might well still be something that happens during the course of the wind down here. Do the local credit unions bank with you then? Or do they bank elsewhere? I think that a number of my banking colleagues and other banks have played active plays to attract business from a number of the credit unions. I think that we enjoy good relations with a number of the local credit unions. Thank you. Jackie Baillie. Certainly, Professor. First question, which is about skills and employability. For many years I was chief executive of the Institute of Bankers in Scotland. In the 90s when banks started deciding that they no longer wanted to employ bankers but sales people. A lot of the traditional bankers we've been talking about left the service and I was able, my colleagues were able to help quite a number of people find employment and we were pleased and surprised to discover that their skills were transferable and not just into other financial services companies but into a wide range of enterprises and public service. I'm sure that's still the case. Thank you. John Mason. Thanks, convener. I mean, we've covered quite a lot of ground already. I suppose we've talked about the regulation side and the impact that's had and then Gillian Martin talked about the modernisation side and it seems to me there's kind of two issues in there. I should say, I mean, I am one of the people that deliberately moved to Airdrie Savings Bank because I was fed up with the bigger banks and I am incredibly disappointed that you're not going to be there anymore. However, that's the way it's going. I mean, even if we hadn't had all the other banking problems and all the extra regulation, was it almost inevitable that the modernisation process and, I mean, I don't have a contactless card, for example? Was that just going to squeeze you anyway, whatever happened? Contactless has actually had a good example of an additional burden that perhaps it's not necessarily one would call as a regulatory burden. But certainly the way we are set up with the terms of our membership of Visa and pushing contactless cards has been quite a strong agenda item over the last, principally, couple of years, really, not much beyond that. And as a result, Visa basically mandated that all members had to make their cards contactless by a particular date. And as a card issuer, that would indeed have been another quite major project that we would have had to work out how we were going to deal with and to make the cards contactless on that basis. And also beyond that, it potentially brings in an additional level of risk in terms of cyber risk and broad risk through contactless transactions, which we're not exposed to at the moment because we're just chipping pin on the card process. So, yes, I think there's no question that as the cost-based shifted and needed to be redressed, even if we hadn't gone through the level of extent that we have, those still would require to have been fundamental changes in strategy within the bank. I mean, I'm not a banker, I'm an accountant in the background, so I don't really know all the details of banking, but if you say you were introduced to something like the contactless payments, I mean, is there a lump sum that you have to pay, a one-off cost for new equipment and things, and then also an extra cost per card, or how does that all work out? Yes, so every time a customer uses their card for anything, be it in an ATM machine, be it to buy something, contactless or chipping pin, the bank gets charged for that. So, there has to be a way of recouping those funds. So, in order to run the project, for example, we would have to set up an internal project, probably involve external IT, require testing of a third party, require to pay a visa to set up their project team in order to run it, and then purchase a whole new stock of cards for all the customers before actually even sending them out to them. So, it was quite a major project. Right, so I mean, even in the banking system, without leaving aside the regulation, you are a small player and you are struggling to compete and work with all of that. I mean, it had been suggested, I think, that maybe you joined up with another bank at some point, which would have overcome some of these kind of problems. Was that ever really seriously considered? Yes, absolutely. In fact, I might bring Charles in to say a wee bit specifically on the structure, but that was a strategic objective that we looked at. For various reasons, again, relating to the corporate structure, a merger or a takeover is not possible in that fashion. Charles, do you want to? I mean, there are plenty of examples, historical and more recent, where small organisations have gone into partnership arrangements with other, sometimes larger, organisations to share resources or to develop a product or pursue a project. Indeed, when the Erdwis Seimsbank first got into lending, it did so through the Bank of Scotland in the 1970s and 80s. We are beginning to see that kind of thing even in the credit union movement, where I think it is actually a department of working pensions that has put up quite a bit of money to provide a common platform for them so that a lot of the overheads can be shared. The banking systems, the simple ledger stuff, can be operated in a common basis, over a number of credit unions, so that each credit union does not then have to set up its own facility and incur all the costs, some of which, as Roger said, the start-up costs of those things are where the damage is really done when it comes to incurring costs. I do not know if this is outside your field, but the EU has been mentioned because some of the regulation is at an EU level. My understanding was that it happened to be in Spain last week and Germany in places that there are more small banks in some of these countries. Are they coping with this? Are they facing the same problems? Not just in Europe, but in the United States. The same sort of thing I spent a year recently in the States. I still have a joint account with my American wife in a little bank in a little town in Massachusetts in the hills. It is wonderful. It reminds me of Avery Samesbank every time I think about it, because the parallels are so strong. All the other local banks around it have merged. It is the only survivor of a whole raft of little banks that existed for a very long time in those local little towns. It is a real small town in America. Similar things. It is not possible to generalise across Europe because such a diverse place, but there has been a lot of merger activity of small banks, particularly at the size of Avery Samesbank. When I heard the news that it was to close, I was hugely disappointed, but I cannot say that I was entirely surprised. Was the union surprised or did the staff just accept that it was inevitable? There are a couple of things in that one. Were we surprised that it was coming? Of course we were, because we have always been working with the bank. As Rodd had said earlier, the bank had nine or ten branches and every year they were doing another strategic review to reduce the branch network because the footfall had been falling and banking has changed for everyone. We are living in a reality TV kind of world now where everything has to happen immediately and Avery Samesbank cannot sustain that kind of demand. We had went from nine or ten branches with the staff in there, down to three branches. When the announcement was made, it was a shock to the staff as well. One of the things is that they could be snapped up. There are a lot of people who are quite, they have been loyal to receiving the bank for lots of years, and there are people there who have worked there for 40 years, and not just one individual, but a lot of people have done that, and there are families in there. It is a community hit, so it is a shock, and can they get other jobs? I am really confident with their skills they can, but they have a confidence thing, and they are quite institutionalised. I am not saying in a bad way, but when you have been in a job for them with a company for a long time, it is quite a difficult prospect or idea to leave that. There will be real challenges in that. You expected, because of the low interest rate, because of the increased regulation, and because of the digital age, you could see that they were really struggling. Unite and the staff are not... You agree with the trustees or the board's decision as to the decision... Unite would never agree to job losses. No, not the job losses, obviously. The decision to close the bank rather than to struggle on or do something else... If they went through every avenue they possibly could, that I can see it, I am not a banker, I have never been in a banker, and I would never want to be a banker, I have to say, but they have explored every avenue, and I have never heard anyone come up with another alternative. The final point that I wanted to ask about, there was a few years ago when a number of people thought that the Irish savings bank was the model for the future, and there was a bit of an injection of money, and a new branch was opened, was it Falkirk, I can't remember? The International Branch? Was it? Was that overoptimistic at the time, or what happened to that? I think that that's a good example. Back in 2010, it was widely reported that a number of Scottish business people were supporting the bank, and I think that the media probably reported it as they had invested within the bank. As we have been discussing today, there is no mechanism, and that's again one of the challenges that we've had strategically. There is no mechanism to actually invest funds within the Irish savings bank. Retained reserves and capital is built up by retained profits. Essentially, we worked closely with them in order to establish the branch connection out in Falkirk. Back in 1997, I believe, that Irish savings bank had closed a branch that it had in Wifflet, and it had kept that expertise for that period of time within the bank. We were then able to redeploy it out to Falkirk in a new launch. Falkirk started off very buoyantly. We were pleased with the results and the way that that was heading. I think that things structurally changed around Falkirk, not long after we moved in there. A new retail park opened further out of the town. The footfall appeared to get even less within the city centre, and fairly quickly the business that we had there was coming through the door, tailed off. When there was a position that came up with regard to the lease that we decided that we wouldn't renew at that point. I think that we were thinking at the time that, in order to push ourselves out there, that had been successful to an extent, escapade, but we hadn't established a model that we felt was able to be replicated, which the bank could then build on. Wendy mentioned the fact that the recklessness and criminality of the financial sector that has ultimately led to the kind of regulatory regime that is now impacting on your sector, which was never designed for your sector because your sector never caused any of these problems. I want to reflect on John Mason's point about other European banks. In Germany, for example, the Sparkasin network is 431 of them. There's a trillion euros, assets, 15,000 branches, over 250,000 people employed in their care support of German industry. It's not that the savings bank model can't work. The savings bank model works extremely well in countries like Germany. I'm just wondering what wider lessons there are for our banking and savings culture in the UK. Is there something fundamentally wrong with the way the UK approaches the question of how banks are organised and structured? Professor Mundan, would you have a comment on that, first of all? Thank you, I think. We don't have a savings culture. There's good logic in that because with a very low interest rate environment such as we have and the easy and cheap accessibility to credit, the savings culture that we once had has evaporated. It no longer exists. It once existed very strongly and every savings bank did a lot to encourage it, especially through the work that they did in schools. We had a national savings system in the UK. That was abandoned, I think, in the 1970s. When the other problem that we talked about a little bit earlier of high inflation also did a lot of damage to the savings culture, we have this spend before you earn culture now and that is not conducive to the running of banks such as the other. The wider culture in countries like Germany is people saving banks. It's a very different culture. They invest in local industry to create jobs that generate wages that they save in the bank that finances the industry. The broader question is about the ecology of banking and how it's connected with the country's industrial manufacturing and economic base, as much as it has to do with the financial sector itself. The Germans don't buy houses. Cards are very moderately used there. It's a really serious difference. It's hard to make the connections. One of the things that's been said for all time about banking in the United Kingdom is that it doesn't serve industry particularly well. Nearly all the academic studies that have looked at that have countered that argument and said, well, that's not true. A lot of the things that I've written in banking histories have confirmed that. There's been no great evidence whether you look back to the Macmillan committee in 1931 and beyond that to a lot of the other criticisms that have been made. There's no real evidence to show that industry has been starved of funds. I've had lots of arguments about this about people over the years because people giving my kind of background will look for an argument and say, you know, you banks are not doing your job properly and not helping the local industry, but when I was running the Committee of Scottish Clearing Bankers for a time, we asked the banks every few months how many accounts they had opened for new businesses. These might just be hobby businesses, certainly not businesses that were registered for VAT at £60,000 turnover. We came up with very substantial numbers, very substantial numbers, which gave the lie to what was often reported in the press that the new business generation numbers in Scotland were poor compared with other countries. They weren't. It was what was being counted and how it was being counted that made the difference. If we're trying to suggest that there is some major cultural, structural difference between Germany and the UK, okay, there might be, but I don't think that that includes any deficit in the part of the banking fraternity. Okay, thank you. Just perhaps to follow up on that, Professor Munn, you said that in Germany the culture is very different. I think that one of the comments that you made was about the fact that people there would tend to use cash more, if I understood you correctly, than they do in this country, so cash rather than cards. The other comment about the Falkirk bank that Rod Ashleigh made, the opening of the branch and then a new shopping centre being built elsewhere, footfall falling away. Are there a number of factors such as that that perhaps there's not the joined-up thinking in this country, whereas in Germany there may be, as well as cultural differences in how people approach money that might tend to support the type of model that Andy Wightman is talking about? It's certainly the case that the way that people approach money is changing and is changing quite dramatically. We've talked about the cashless society in the UK for quite a long time now. It now seems to be arriving. It's taking quite some time to get here. The point of that, of course, is that people don't go into their branches anymore. It's almost unheard of. They don't use cheques anymore to make payments. There's still online banking, telephone banking and the need for a branch network, compared with what it once was when I was young bank clerk in the 60s. It's just so incredibly different from what it used to be. Large organisations have to deal with those changes. I'm not an expert in Germany, far from it, but I think that Germany is some wonderful model for us all to follow, because their big commercial banks have had great difficulties, too, particularly Deutsche Bank. Deutsche Bank isn't the behemoth in Germany that the likes of Barclays is in the United Kingdom. It's got 5 or 10 per cent of the deposits. We're Germany to take your point fully on. I think that it has an advantage that it has a lot of regional banks, but they're not small. They're not organisations the size of Airdrie Savings Bank. The Sparkasin Savings Bank model may have had its origins in Ruthwold to some extent as the rest of the Savings Bank movement did, but it moved in different directions in the 19th century, and the Sparkasins became commercial lending banks at a very early stage in their history, and are considerably larger than the likes of the Airdrie Savings Bank, with something in the order of £150 million of deposits. Sorry, Wendy. The footfall and branches in the wider context. The big banks have deliberately, in my view, wanted to branch network closures. They have targeted staff to get people to open internet banking and telephone banking, and if you don't hit your target, you are going through a performance management process, which could ultimately end up in dismissal. The big banks have determined that they want to have these call centres or internet banking centres, and therefore the footfall has an impact. The other impact that stopped people going into branches and I'm one of them is because every time you went in, the staff had to try and sell you something, so rather than that, you tried to avoid to be saying, no, I don't want anything, I'll just go into internet banking. That's having a real impact in rural communities now. The banks have deliberately done this, whether it's been very visible or not, is irrelevant, and now internet banking is going to be a real problem for rural communities in particular. There is another strategy going on out there that is not as visible to our communities as should be. I suppose there may be strategies that may have unintended consequences as well. Would you accept that? Absolutely. If you look at what the banks are doing just now, and I'm going to pick one place that just happened really recently, the one place is that Inverary had a Bank of Scotland and a Royal Bank of Scotland until January this year. Bank of Scotland closed November-December time, and I think that the Royal Bank closed in January, all down to, yeah, you've got digital banking. They don't have an internet service, they don't have internet access, a strong internet access, so that community is going to be quite rural and quite cut off from banking. They're also cutting back the buses, and the nearest town is either Dumbarton or Loch Gilpead. Individuals and the people who do use the banks, the vulnerable in society, the older people, the younger people and the disabled, they can't get anywhere to use banking facilities unless they've got internet, really strong internet access, and Inverary doesn't have it. There are unintended consequences, but I'm not as convinced that they were properly unintended because branches are quite expensive to run and banks are there to make money. For their shareholders, not their disabled bank, they're a true bank, but the other ones, I'm not completely convinced that they were unintended. Just one question, perhaps Professor Munn, and that's about the, you talked about, I think you mentioned checks, and if I recall correctly, in the recent past there was a move to get rid of checks as a service, and that, in fact, didn't happen because I think people pointed out that that would present difficulties to, for example, elderly people or those who have to pay by check. Could you comment on that? Perhaps looking at what we've been asking in question about lessons for the future, what we can learn from this as to how to approach things to ensure that elderly, disabled, vulnerable people, those who don't have access to the internet can continue to have banking services? The last I caught up on the checks question, I understand that it's still the ambition of the banks to end the use of checks. There are plenty of other ways to make payments. As we know, you can do it on a telephone, you can do it on the internet, you've got an internet service, which is clearly not always the case. You can still do it by sending a check through the post at the moment. Quite what the future holds, I wish I knew. We're clearly at a very, very serious change in the way that people deal with money and the way that they run their own financial affairs. I just wish I could see with great clarity what the future might hold. Historians like me are supposed to be able to do that, because history is supposed to teach you what the future might hold. All I can offer is that we'll get more of this type of change. It's clear to you that all sorts of other agencies, such as Apple, are entering into the payments arena now. That's going to bring further change, but it's also going to make inroads into the business of the commercial banks. If we allow that to happen in the way that it is already happening and to expand, we'll get to the point where the commercial banks, we might be in this situation already, are experiencing the same kind of pressure as the Erdogan Bank has experienced. For the simple reason that, particularly in running current accounts, it's virtually impossible for a commercial bank to make money running current accounts nowadays. That's why they've become sales organisations. They're trying to make their money doing other things. Gil Paterson. Having stood in Erdogan Shots twice for the Scottish Parliament and getting elected in 1999, although I didn't get elected in Erdogan Shots because I was on the list, I find this a very sad occasion to be quite honest with you because I know that from the local community's perspective it's so well respected, it's so well trusted and in your closing that you've just proven that. The responsible way that you're carrying this out is a commended way that you're going about your business is absolutely correct the way that you're doing it. Looking at your submission, there's quite a number of issues in there that's maybe putting the pressure on you. I wondered if there was maybe one or two items that didn't occur, if there was something that you could avoid or it didn't happen. Is there something that was a killer blow, in other words, that I'm asking? If you ask me what's the one overarching factor that's influenced the business model of the bank that has been out with the bank's control, it would be the lower for longer interest rate position that we find ourselves in. When the rates dropped to 0.05 of a percentage point back in 2008-2009, I think that the trustees at Airdrie and the board then took the right actions. As we discussed earlier, they had built up some reserves that were then being used to provide the service within the community, but we looked to see what we might be able to change. I don't know, Professor. I've certainly attended presentations since 2009 with economists telling me that rates will rise just around the corner and we're still here in 2017. This is partly influenced by the keeping of the interest rates, low policy by the central government and the support that it's providing behind the scenes for the larger banks to be able to take money from them at low cost and pump that out in the form of low rates. That vests itself into bank lending rates being low for the bank. Obviously, we all know the retail deposit rates that we're receiving on interest are very low, but also through the mortgage market as well, as deals are able to be offered with very low rates of interest on that. Again, making it more difficult even for organisations such as ourselves to enter into that arena. In summary, I think that the one item that's affected the model most is the interest rate environment. That's the one that you've got the least influence over, hasn't it? Yes. The second question that only people have is that Governments have the powers to influence that. The current climate or, as it was, it's not going to be an impossible task even to save your bank. That low interest rate environment is a challenge appreciated by the other banks as well, but just as Wendy was leading to the business models are structured completely different to ours in terms of other ways that they will be able to raise income. Okay, thank you very much for that. I just clarify one thing on the last point. I understand the point about where the Government supports certain schemes or lending schemes for, for example, first-time buyers, but is it not worldwide that the interest rates are low at this time? It's the Bank of England that, independent of Government, sets the interest rate. Yes. I think that the interest rates perhaps are not universally worldwide that low. For example, I know in Australia they're not, they never drop to as low a level as they did in this country, but certainly across Europe and certainly in America, although they've crept up just a smidge from where we were. That would be the case. Yes, and I think that the independence of the Bank of England to control the inflation and pressure is right. It's not necessarily, I'm thinking, of the first-time buyer-type schemes. I'm thinking of Government schemes such as the funding for a lending scheme and its successors, which was a fund by which the bank and through the Government, banks, really bigger banks, could enter into it and then obtain funds at a low rate of cost. Was that something that the Audrey Savings Bank was able to do, or was that something that didn't fit within your product range? Technically, we could have applied for it, but it's a scale question, really a scale and cost question, that we were not big enough to do that and to take advantage of it. Bill Bowman. A quick question from Mr Ashley again. I don't know if you said and if you didn't. Could you tell us what happens to any surplus at the end of a winding up? The Government structure of the bank is the 1819 act. Then there's a set of rules, orders and regulations, which are subject to the jurisdiction of the sheriff principal in our case at Audrey, so close by. Under the terms of those rules, if at the end of the day, in terms of a final winding up of the bank, there is and we don't know at the moment, but we're anticipating that there may be a set of assets over liabilities. That requires to be returned to the depositors in such proportion as they had deposited in the bank at a date and time, such date and time to be established by the board of trustees. To be honest, at the moment, we haven't given a lot of thought to exactly where that would be. It's likely that that date will not be a future date as far as the bank is concerned. It will be a date in the past. Also, we suspect that it's likely that if there were to be a service, which we hope that there will be, because of the large number of low-level depositors, we have any potential payment to anybody will be of a small nature. Consequently, the board are considering various options among which is there a way of approaching the court and establishing whether or not those ones could be used in a community charitable fashion in some capacity, but there's no definitive answer for you on that at this point in time. Can you explain what your relationship was like with the PRA? Were they easy or difficult to deal with? Since I've been at the bank, which is from 2013, I think that I would describe as a very encouraging relationship with the PRA. We have had key team members, key managers appointed to the bank who have remained with us over that period of time, who I continue to work with on a week-to-week basis very much so. They have taken quite a lot of time and effort to understand our business model and to listen and to hear our proposals for various strategic options as we have been going forward and to be supportive and challenging as they needed to be in relation to that. Their objective, as we know from the papers, is a strong and secure financial sector, so I use the word encouraging because that's what they would like to see the entities to become. I've been encouraged by the relationship that we have with them and continue to work with them. Dean Lockhart. I just wanted to clarify a couple of points. You mentioned earlier that you considered yourself as a social enterprise. Did you receive any funding or other help from any Government agency as a Scottish Enterprise or Social Enterprise Scotland? I'll tell you the answer, which bracket it will fill into. The two projects that I referred to earlier in terms of helping us to move into the mortgage intermediary market and establishing the social enterprise sector, we obtained funding and support from Scottish Enterprise with staffing costs to get that established. That was the support that we obtained. I probably wouldn't have described a specific social enterprise support, but it was helpful and appreciated. Just one follow-up point on the winding-up process. What will happen to any outstanding loans or mortgages that you have, given that if you have loans or mortgages outstanding, they tend to be longer-term assets? Do you have a plan in place? What's the plan in place to wind down those longer-term assets? We've been working with the TSB who are being a partner with us in this process. The secured lending book has been sold across to them, so mortgages will be in the process of moving across to TSB. With regard to the unsecured lending, we've contacted the customers to explain the situation and to look at working with them to find out how they might be able to repay us. Given the loan profile, a lot of the lending wasn't necessarily profiled over a large, outlying number of years, so the vast majority of it will be due for repayment in the normal course over the next 12, 18 months, so a lot of it will be able to remain just on normal repayment terms. Some customers have said that they will move and they'll look to go elsewhere, but we're kind of committed to working with each of the customers on that basis to find a solution that works for them. Thank you. Richard Leonard had one further perhaps final question. Just a final point. I don't want to either raise false hope nor put words in your mouth, Mr Ashley. In answer to a question that Jackie Baillie posed earlier on, you hinted that there may be a possibility of a phoenix rising from the ashes of the Aidra Savings Bank. Is there any possibility of anything being rescued from the great reputation that banks established for over 180 years in maybe a different model of ownership? I suspect that, at this point in time, my hesitation was more uncertainty about what the future might be holding at that point rather than anything that I could say that would be definitive. The position at the moment is that the bank will wind down. The current accounts in the bank account, the branches are closing at the end of April during the course of 2017. We will then get to a position where there will be a residual set of deposits left and then the trustees will need to find another deposit taker in order to move that book of residual assets to. The project has been scoped very much out to that point at the moment and we're just looking at the options in relation to that. Whether or not there is, and I certainly don't want to give any hope that there is something there, how that ends up being settled has yet to be established. I think that in a practical sense we have to work on the basis that we're winding down and there will be some sort of community legacy in relation to the bank rather than a banking one. But it might take the form of a credit union? I think that that was the point that Jack and I were talking about. Again, I'm not saying that anything has been discussed on that basis. I can see the similarities between the bank and a credit union. As Charles said, in actual fact, if we were based in America or even Canada, every savings bank would in fact be a credit union because that's the model that it follows, so they are close. Operating under quite a different regulatory regime? Yes, the credit unions to an extent benefited from having the specialist source book that they have with regard to regulation, where at least everything is kept condensed. Certainly, at the time I worked there and I'm removed from there for a number of years now, so I can't comment on the current position. The regime was quite different to that, which flowed under the banks. Thank you. Thank you. I think that Andy Wightman did want to get a final question in, so perhaps that. On the assumption that the winding up is complete, where are your artefacts and archives? The long history must have generated. Are you planning to deposit them in the national archives or what arrangements have been made? Currently, I've been contacted by a number of organisations. The national business archives for Scotland have been in touch. I've also spoken to the savings bank museum in Ruthwell with regard to any particular archives there, and also North Lanarkshire culture and heritage, which are the local authority area in which we invest. They, in particular, have a heritage museum out at Summerleigh. I'm confident that the archives and the legacy will end up in the most appropriate place for it, so that it can be seen and shared with the community. Thank you. I think that that concludes our questions for today. May I thank all three of you for coming in? I'm sure that the committee would agree with me that it's regrettable that it's in these circumstances that we've invited you here, if I may put it that way, but I'm sure also that the committee would wish to send their best wishes to all those involved, and in particular the workers at Erdry Savings Bank, and wish you all the best for the future. Thank you very much. We'll now suspend this session. We'll return to public session at 11.30am.