Is the Big Society Bank a small-state bank?
The government's new 66-page strategy document for its Big Society Bank and growing the so-called "social investment market", which has been published today, raises almost as many questions as it answers.
And perhaps most importantly of all, it will act exclusively as a wholesaler. Or to put it another way, it will not put money directly into social enterprises, or businesses with some kind of social purpose, but will invest in funds and operations that in turn make the direct investments.
Think of it as the social banking equivalent of the sprat to catch a mackerel. It plans to help other investors raise significant sums to back social ventures by being perhaps the first to invest in their funds, or being prepared to provide the most risk-bearing slug of capital to these investors, the slug that takes the first loss, for example.
Also it won't have that much capital to play with, at least not initially. It expects to receive up to £100m in its first year of money from dormant bank accounts at UK banks and building societies, rising to £400m over some unspecified period (this is money that the likes of you and I have deposited at banks and have completely forgotten about).
As part of Project Merlin, it will receive around £200m of additional capital in the form of some kind of loan or investment from Royal Bank of Scotland, Barclays, HSBC and Lloyds. But apart from the fact that these banks expect to be rewarded for this money at commercial rates, it is not at all clear whether this finance will be in the form of some kind of subordinated debt or equity.
What we do know is that the £200m from the four banks will not be free. Which in turn means that the Big Society Bank will have to make some kind of meaningful return on the money it invests, in order to meet its aim of covering costs.
It is worth putting those resources into some kind of context. In year one, they will be equivalent to 0.02 of British GDP, so the Big Society Bank will indeed be a minnow or sprat compared with the whales of RBS, Barclays and HSBC whose balance sheets each exceed GDP.
But that may be the wrong comparison. Perhaps more important is that the social investment market is currently small: in 2010, total social investments in the UK were estimated at £200m. So a new bank with an initial balance sheet of £300m should make a difference.
To be absolutely clear, the Big Society Bank is not a charity. In fact, one of the things that is holding back its launch is that it needs state aid approval from the European Union, because it or the ventures it backs will be competing directly with commercial businesses and it could be seen to have an unfair advantage thanks to its access to the money in dormant bank accounts.
So here is where we get into the territory of things we don't know.
We have absolutely no idea what kind of interest rate the Big Society Bank will charge or what kind of dividend it will demand from those who take its finance.
We don't know whether it will have a preference for lending or taking equity stakes.
It is not clear what freedom it will have to expand its own balance sheet: it will be prohibited from taking deposits, but whether it will be allowed to issue bonds and raise additional wholesale finance is not specified.
And, perhaps most important of all, we don't really know what kind of social enterprises it will favour.
Will it try to back conventional businesses in areas of acute deprivation and strife, that have been all-but abandoned by mainstream banks and investors?
Or will it back ventures whose purpose is explicitly social, such as those providing advice and services to the very poorest?
Some will see it as a tool to help the government in its aim of dismantling the centralised state, by providing the capital needed by civil servants and officials to buy out their public services and turn them into employee partnerships and mutuals.
If much of the money did end up helping to turn parts of the public sector into John-Lewis-style employee-owned businesses, some would see that as a waste of the Big Society Bank's resources.
The Big Society Bank would not be creating new social enterprises in those instances. It would simply be helping to transfer the ownership of existing social enterprises - parts of the health service, social services, schools and so on - from the state or taxpayers to the staff or employees of those operations.
That transfer of ownership to staff might improve the efficiency of the relevant public services. But it is difficult to see it as creating incremental wealth, employment or opportunities for those abandoned by capitalism's mainstream institutions.