Widespread disagreement remains over what the Government's proposed social investment bank should look like and how it should be run, responses to a Cabinet Office consultation have revealed.
The bank is expected to distribute funds from unused bank accounts under the Dormant Bank and Building Society Accounts Act 2008.
The consultation, which closed last week, lists several possible functions for the bank, including promoting sustainable investment, leveraging outside capital and investing it, developing new financial products for the third sector and developing skills for investment readiness.
"It needs to make sure several players are doing all of these things," said Toby Eccles, development director at Social Finance, which was set up to help develop the bank.
But Caroline Mason, co-founder of social investment broker Investing for Good, said the new institution would not have enough money to provide all these services.
"The consultation describes everything the bank could do," she said. "But there's only a relatively small amount of money. I think it will fail if it tries to do everything."
Mason admitted it was unclear how much money would be available, but the Government said last year that a bank could be established with as little as £40m (11 December 2008, page 4).
Malcolm Hayday, chief executive of Charity Bank, said he was not certain that a social investment wholesale bank was the best way forward, and that the money might better be allocated among existing organisations.
"We don't believe an economic case has been made for a bank," he said. "And if it goes ahead, we don't believe it should be a bank. We think many of the functions proposed could be carried out among existing organisations, such as the Community Development Finance Association."
Existing social lenders said they were worried the bank would distort the existing retail lending market.
Charles Middleton, chief executive of Triodos Bank, said even if the bank was set up as a wholesaler there could be "mission creep" into retail lending.
"We're worried there may be a desire to get the money out of the door," he said. "That could lead the bank to lend at a below-market rate."
Jonathan Lewis, chief executive of Social Investment Business, formerly Futurebuilders, said the bank should not restrict itself to wholesale lending.
"The sector is under-capitalised," he said. "We feel there is a need for another powerful institution in the market.
"We don't really believe there should be a strict divide between wholesale and retail."
Lewis said his organisation expected to tender to run the bank once its final form was established. However, other respondents to the consultation said they did not want to see it in the hands of a single organisation.
"If this is a market organisation, whoever runs it needs to trusted by the rest of the market to be a market-builder," said Eccles. "It would be difficult for a retail finance provider to run an organisation that supports other retail finance providers."
"There's only a relatively small amount of money. I think it will fail if it tries to do everything" - Caroline Mason Co-founder, Investing for Good
"We don't believe that an economic case has been made for a bank - and if it goes ahead, we don't believe it should be a bank" - Malcolm Hayday Chief executive, Charity Bank
"The sector is under-capitalised. We feel there is a need for another powerful institution in the market" - Jonathan Lewis Chief executive, Social Investment Business
"It would be difficult for a retail finance provider to run an organisation that supports other retail finance providers" - Toby Eccles Development director, Social Finance