The Great Wealth Generation Act 1.0

Overview

This proposal outlines a transformative framework for reforming the UK banking system to prioritize decentralized, community-focused financial institutions. It presents an option to redirect banking toward sustainable economic growth, support for small and medium-sized enterprises (SMEs), and local empowerment. The reform envisions a network of local banks investing in productive enterprises, with transparent alignment to community needs, fostering equitable prosperity.

Key Objectives

• Encourage a decentralized banking system to enhance local investment and reduce dependence on large, centralized financial institutions.
• Promote credit creation that supports productive activities contributing to real GDP growth.
• Support the creation of public and sovereign banks to safeguard community wealth and financial independence.
• Ensure banking practices align with transparent, publicly stated community goals.
• Foster SME lending while limiting excessive bank consolidation to maintain a diverse financial ecosystem.

Core Provisions

1. Decentralization of Banking Institutions

• The government should facilitate the creation of at least 500 new local banks within ten years, each serving defined geographic areas with assets not exceeding £10 billion.
• Local banks should prioritize lending, with at least 70% of their portfolios directed to SMEs and productive sectors within their regions.
• Regulatory incentives, such as streamlined licensing processes and reduced capital requirements, should be offered to institutions meeting local bank criteria.

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• Reasoning: Decentralized banking structures have historically demonstrated effectiveness in promoting local economic vitality by ensuring that financial resources remain within communities, directly funding businesses that create jobs and drive innovation. This approach minimizes the outflow of capital to distant corporate centers, thereby enhancing regional economic resilience and reducing systemic risks associated with over-centralization. An improvement could involve integrating digital platforms for these banks, enabling seamless online access for borrowers while maintaining local oversight, which would expand reach to underserved areas without compromising community focus.

2. Productive Credit Direction

• Banks should allocate at least 50% of newly created credit to productive investments, such as manufacturing, innovation, infrastructure, and SME expansion, excluding speculative activities like real estate or financial trading.
• The Bank of England should issue clear guidelines on classifying productive credit, incorporating metrics for long-term economic impact.
• Regulatory bodies should monitor compliance annually, with penalties such as fines up to 10% of annual profits or dividend restrictions for non-compliance.

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• Reasoning: Directing credit toward productive uses ensures that new money creation contributes to tangible economic output, such as increased production capacity and employment, rather than inflating asset prices that benefit only a few. This prevents the formation of economic bubbles and stabilizes inflation, ultimately preserving public purchasing power. To enhance this, guidelines could include quantitative assessments, like requiring a minimum projected GDP contribution per loan, and integrating environmental impact evaluations to prioritize green initiatives, thereby aligning financial growth with sustainable development goals.

3. Development of Public and Sovereign Banks

• Local and regional authorities should be empowered to establish public banks, with initial funding of £5 billion from central government resources to seed at least 50 such institutions.
• Public banks should prioritize financing that enhances local financial sovereignty, such as community infrastructure and SME support, reducing reliance on centralized financial systems.
• These banks should operate with transparent governance structures, reporting to local stakeholders and aligning with regional economic priorities.

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• Reasoning: Public banks owned by communities or governments can recapture profits from money creation for public benefit, such as lowering taxes or funding essential services, while fostering financial independence from global market volatilities. This model empowers regions to tailor financing to their unique needs, promoting inclusive growth. An advancement might involve incorporating blockchain technology for immutable transaction records, increasing trust and efficiency in operations, and allowing for tokenized assets that enable broader public participation in bank governance.

4. Incentive Alignment with Community Goals

• Banking institutions should define and publicly state their community goals, encompassing economic development, job creation, environmental sustainability, and social equity, in annual reports and on accessible platforms.
• Community goals should be developed through public consultations, held at least annually, with records made publicly available to ensure transparency.
• Independent audits should verify alignment with stated goals, with non-compliance leading to corrective actions or sanctions.

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• Reasoning: Requiring banks to explicitly align incentives with community objectives ensures that financial decisions serve broader societal interests, such as equitable wealth distribution and environmental stewardship, rather than solely maximizing shareholder returns. Public disclosure and consultations build accountability, allowing stakeholders to hold institutions responsible and adjust goals dynamically. To improve upon this, audits could employ data analytics tools to measure outcomes quantitatively, such as tracking job creation metrics or carbon footprint reductions, providing empirical evidence of alignment and enabling performance-based incentives for bank executives.

5. Support for SME Lending and Limits on Consolidation

• Banks should be incentivized to increase SME lending through tax relief on profits derived from such loans, targeting at least 50% of portfolios for larger institutions.
• Mergers or acquisitions that increase market concentration above 20% in any region or reduce the number of local banks should be restricted, unless deemed essential for financial stability.
• The Competition and Markets Authority should oversee divestitures by large banks to create smaller, SME-focused entities.

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• Reasoning: Smaller banks tend to provide more proportional lending to SMEs, which are key drivers of innovation, employment, and economic diversity, whereas larger institutions often favor low-risk, high-volume speculative ventures. Limiting consolidation preserves competition and directs capital toward grassroots enterprises. Enhancements could include AI-driven risk assessment models tailored for SMEs, reducing lending barriers by analyzing alternative data sources like cash flow patterns, and establishing collaborative networks among local banks to share best practices and co-fund larger projects.

Implementation and Oversight

• Regulatory Framework: The Bank of England and Financial Conduct Authority should oversee implementation, providing annual reports to Parliament on progress, compliance, and economic impacts.
• Transitional Measures: Existing banks should be given a three-year compliance period, supported by a £2 billion reform fund to facilitate transitions.
• Enforcement: Non-compliance should trigger fines, operational restrictions, or license reviews to ensure adherence to the reform’s objectives.

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