Former West Bromwich Building Society chief executive Stephen Karle is helping Birmingham City Council develop its plans for a municipal bank.

Mr Karle, who surprisingly quit his high-profile job in October last year, is one of several regional business figures offering advice about the best way to deliver the ambitious project.

The disclosure comes amid evidence that preparatory work to set up a council-run bank is being hampered by legal and financial difficulties.

Council leader Mike Whitby announced before Christmas last year his intention to help businesses and families affected by the credit crunch.

He hoped that a bank, signalling a return to Birmingham’s Victorian municipal pre-eminence, would restore public faith in lending institutions and would be able to offer businesses the cash loans they needed to survive the recession.

Senior city officials have been working full-time to develop the plan since then.

Advice about the best way forward is also being sought from the Bank of England and HSBC.

Mr Karle said the council should be under no illusion about the difficulty of establishing a municipal bank – which would be the first of its kind anywhere in the country.

He added: “Like many people, I am just trying to offer a few ideas at this stage. I am not formally doing anything for anyone.

“There seem to be a lot of competing views as to what is required here. It is an area where you have to tread carefully.

“There are all sorts of potential pitfalls.”

Business leaders are warning that the council must be careful not to break European Union competition laws and must make sure a municipal bank operates on a level playing field against private sector financial institutions.

Mr Karle added: “An overwhelming objective is to encourage inward investment. We must encourage banks and building societies to prosper in our city.

“One of the things we must not lose sight of is the need to find funding for the businesses that are going to develop jobs going forward.

“A lot of thinking has to be given to how we help successful businesses in the future.”

Reports prepared for a council scrutiny review group suggest that Birmingham may need Parliamentary approval in order to set up the bank.

Doubts are also raised about the council’s ability to administer deposit accounts and mortgages.

Alistair Dow, who is chairing the review group, cautioned against a “knee-jerk reaction” by anyone who believed it was a simple matter to open a municipal bank.

Coun Dow (Lib Dem Selly Oak) added: “People are enthusiastic about taking deposits but there are a lot of regulatory controls and we may need an Act of Parliament to set it up.

“A municipal bank is a genuine look to see how we can help people, but it is not a quick fix for the state we are in.”