The bank would be the first run by a council for more than 30 years
Essex County Council is setting up a bank to help firms struggling to get finance during the recession.
The council is setting aside £50m for loans of up to £100,000 for small and medium-sized businesses which have been trading for at least a year.
The bank is being created under powers which councils have to promote the economic well-being of their area.
"Bank of Essex" could be set up within a year after going through all the necessary legal and regulatory work.
BBC News local government correspondent John Andrew says the council sees the move as a shift away from a remote centralised system of banking to one more responsive to local needs.
The initiative will work in partnership with banking giant Santander, making it the first council-run bank for more than 30 years.
The Birmingham Municipal Bank, established during World War I, survived until 1976.
The council already has an award-winning £1.5m scheme which has seen closed post offices reopen in the county.