Can Danny Alexander get banks lending?

Information isn't enough, writes Carl Packman. Financial institutions need to know about their obligations.

A Resolution Foundation report from 2010 pointed out that despite the so-called boom period from 1997-2007, “incomes of the bottom three-fifths of the UK population failed to keep rise with rising prosperity”. So how were we able to eat? Easy: the dramatic rise of mainstream consumer credit. 

Credit cards and friendly banking institutions filled in where wages dropped. But then after the recession mainstream banking institutions became slightly risk averse. Credit wasn't so free-flowing, and wages still weren't rising. In fact real wages fell on average by 7 per cent in the two years from the end of 2009 (according to Stewart Lansley in a chapter of a new book called The Socialist Way). 

Soon the technical recession would be over, meaning the UK would enjoy positive growth, but the practical recession, where households under-served by banks were tightening their own budgets and feeling the full force of what the economic collapse had to offer, was just getting started. 

Now, Chief Secretary to the Treasury Danny Alexander will try to reverse this by announcing that banks, by January 2014, will have to reveal their lending data across 10,000 postcode areas. The Treasury has said that this move will encourage competition by helping smaller lenders to identify unmet need. It will also show which communities mainstream banking is neglecting. 

Disclosure of lending trends is to be celebrated, but it's only a first step. When we start to find patterns of unmet need only then can we make banking better by reminding those financial institutions of their obligations towards wider society, and this will address the lingering problem of the un- and under-banked

Fortunately we don't have to reinvent the wheel.The Community Reinvestment Act (CRA), was enacted by United States Congress in 1977 with the intention of encouraging depository institutions to help meet the credit needs of the communities in which they operated.

It was noted that though banking institutions were and are privately capitalised, they had and have an obligation to serve their local communities. What started as a way of disclosing lending details, much in the way that Danny Alexander wants to, it ended up being a way to highlight where banks were not meeting the credit needs of low and moderate income communities and permitted regulators to penalise lenders with weak records.

By 1984 three large lending institutions, First National Bank of Chicago, Harris Trust and Savings Bank, and the Northern Trust Company had all committed $153bn to reinvestment purposes, focusing on single family and multi-family housing and small business loans. Other larger institutions such as the Bank of America set aside $12bn annually to ensure consumer loans were being lent to lower income families. It took time, but the act proved highly successful.

It was not without its problems, however, which the UK can learn from. At the outset community groups who oversaw the enforcement of the CRA found fault with the way in which the regulators supervised banks. It was supposed that they were not rigorous enough and that they were not properly enforcing the new requirements effectively. 

That's why in 1989 Congress amended the act to require regulators to show their CRA evaluations. After this, from 1990-1992, only 939 banks (9.8 per cent) were deemed in need of improvement and 87 (0.9 per cent) substantially non-compliant out of 9,520 banks that were covered. 

The important message about the CRA, pointed out by Allen J Fishbein in his fifteen year evaluation of it, is the following:

“Despite the perception by many bankers that lending in low and moderate income areas is too risky and unprofitable, the experience over the last fifteen years has debunked these myths. Numerous examples of successful community reinvestment partnerships that have come into being since the CRA's enactment demonstrate that lending to the residents of older urban neighborhoods is both prudent and profitable for banking institutions.”

So what Danny Alexander should see to before his new measure is enacted next year is:

  • Make sure lending data disclosure rules are properly enacted;
  • Oblige regulators to publish their reports;
  • Call for a reinvestment action council, made up of people in local communities, that can publicly testify on banking institutions lending records (or better still, grassroots groups can set these councils up themselves); and
  • Set penalties for banks who do not invest sufficiently in local communities and use that money to sponsor local credit unions.

Moves towards disclosure are positive, so lets keep the momentum and make banks benefit communities, too.

Photograph: Getty Images

Carl Packman is a writer, researcher and blogger. He is the author of the forthcoming book Loan Sharks to be released by Searching Finance. He has previously published in the Guardian, Tribune Magazine, The Philosopher's Magazine and the International Journal for Žižek Studies.
 

Getty
Show Hide image

Inside Big Ben: why the world’s most famous clock will soon lose its bong

Every now and then, even the most famous of clocks need a bit of care.

London is soon going to lose one of its most familiar sounds when the world-famous Big Ben falls silent for repairs. The “bonging” chimes that have marked the passing of time for Londoners since 1859 will fall silent for months beginning in 2017 as part of a three-year £29m conservation project.

Of course, “Big Ben” is the nickname of the Great Bell and the bell itself is not in bad shape – even though it does have a huge crack in it.

The bell weighs nearly 14 tonnes and it cracked in 1859 when it was first bonged with a hammer that was way too heavy.

The crack was never repaired. Instead the bell was rotated one eighth of a turn and a lighter (200kg) hammer was installed. The cracked bell has a characteristic sound which we have all grown to love.

Big Ben strikes. UK Parliament.

Instead, it is the Elizabeth Tower (1859) and the clock mechanism (1854), designed by Denison and Airy, that need attention.

Any building or machine needs regular maintenance – we paint our doors and windows when they need it and we repair or replace our cars quite routinely. It is convenient to choose a day when we’re out of the house to paint the doors, or when we don’t need the car to repair the brakes. But a clock just doesn’t stop – especially not a clock as iconic as the Great Clock at the Palace of Westminster.

Repairs to the tower are long overdue. There is corrosion damage to the cast iron roof and to the belfry structure which keeps the bells in place. There is water damage to the masonry and condensation problems will be addressed, too. There are plumbing and electrical works to be done for a lift to be installed in one of the ventilation shafts, toilet facilities and the fitting of low-energy lighting.

Marvel of engineering

The clock mechanism itself is remarkable. In its 162-year history it has only had one major breakdown. In 1976 the speed regulator for the chimes broke and the mechanism sped up to destruction. The resulting damage took months to repair.

The weights that drive the clock are, like the bells and hammers, unimaginably huge. The “drive train” that keeps the pendulum swinging and that turns the hands is driven by a weight of about 100kg. Two other weights that ring the bells are each over a tonne. If any of these weights falls out of control (as in the 1976 incident), they could do a lot of damage.

The pendulum suspension spring is especially critical because it holds up the huge pendulum bob which weighs 321kg. The swinging pendulum releases the “escapement” every two seconds which then turns the hands on the clock’s four faces. If you look very closely, you will see that the minute hand doesn’t move smoothly but it sits still most of the time, only moving on each tick by 1.5cm.

The pendulum swings back and forth 21,600 times a day. That’s nearly 8m times a year, bending the pendulum spring. Like any metal, it has the potential to suffer from fatigue. The pendulum needs to be lifted out of the clock so that the spring can be closely inspected.

The clock derives its remarkable accuracy in part from the temperature compensation which is built into the construction of the pendulum. This was yet another of John Harrison’s genius ideas (you probably know him from longitude fame). He came up with the solution of using metals of differing temperature expansion coefficient so that the pendulum doesn’t change in length as the temperature changes with the seasons.

In the Westminster clock, the pendulum shaft is made of concentric tubes of steel and zinc. A similar construction is described for the clock in Trinity College Cambridge and near perfect temperature compensation can be achieved. But zinc is a ductile metal and the tube deforms with time under the heavy load of the 321kg pendulum bob. This “creeping” will cause the temperature compensation to jam up and become less effective.

So stopping the clock will also be a good opportunity to dismantle the pendulum completely and to check that the zinc tube is sliding freely. This in itself is a few days' work.

What makes it tick

But the truly clever bit of this clock is the escapement. All clocks have one - it’s what makes the clock tick, quite literally. Denison developed his new gravity escapement especially for the Westminster clock. It decouples the driving force of the falling weight from the periodic force that maintains the motion of the pendulum. To this day, the best tower clocks in England use the gravity escapement leading to remarkable accuracy – better even than that of your quartz crystal wrist watch.

In Denison’s gravity escapement, the “tick” is the impact of the “legs” of the escapement colliding with hardened steel seats. Each collision causes microscopic damage which, accumulated over millions of collisions per year, causes wear and tear affecting the accuracy of the clock. It is impossible to inspect the escapement without stopping the clock. Part of the maintenance proposed during this stoppage is a thorough overhaul of the escapement and the other workings of the clock.

The Westminster clock is a remarkable icon for London and for England. For more than 150 years it has reminded us of each hour, tirelessly. That’s what I love about clocks – they seem to carry on without a fuss. But every now and then even the most famous of clocks need a bit of care. After this period of pampering, “Big Ben” ought to be set for another 100 or so years of trouble-free running.

The Conversation

Hugh Hunt is a Reader in Engineering Dynamics and Vibration at the University of Cambridge.

This article was originally published on The Conversation. Read the original article.