THE encomium to socially responsible banking in the classic Christmas film It's A Wonderful Life found an echo in the House of Lords on Thursday of last week, when the Bishop of Durham, the Rt Revd Justin Welby, spoke about the "huge potential" of credit unions.

Bishop Welby described how credit unions in his "greviously underbanked" diocese had "made good finance and access to credit available in an extremely deprived area", echoing the 1946 film's warning that, without a mutual society, people from a small town would not have been able to take out mortgages.

Credit unions were now necessary "in a way that we have not seen since the 19th century", Bishop Welby said, "keeping capital and profit local, beginning at the bottom of the tree rather than the top". He warned that they were held back by a lack of good IT systems and the "profound expertise" of managers in other companies. He supported a recommendation from the Department for Work and Pensions (DWP) that the Government invest in the sector.

The Church of England and the Roman Catholic Church had branches in every community, the Bishop said, and were "used to handling money . . . and we are rather good at it. We have very low levels of fraud. We need to get involved and contribute to this in a powerful and effective way."

Bishop Welby also warned that credit unions must retain their "distinct purpose and nature", unlike those building societies that, after demutualisation, "went up with the rocket and down with the stick".

There are 400 credit unions in Britain, holding £776 million in savings and with more than £602 million currently out on loan. They serve two per cent of the adult population, compared with Ireland (75 per cent) and the US (44 per cent).