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.
 

Photo: Getty
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Rising crime and fewer police show the most damaging impacts of austerity

We need to protect those who protect us.

Today’s revelation that police-recorded crime has risen by 10 per cent across England and Wales shows one of the most damaging impacts of austerity. Behind the cold figures are countless stories of personal misery; 723 homicides, 466,018 crimes with violence resulting in injury, and 205,869 domestic burglaries to take just a few examples.

It is crucial that politicians of all parties seek to address this rising level of violence and offer solutions to halt the increase in violent crime. I challenge any Tory to defend the idea that their constituents are best served by a continued squeeze on police budgets, when the number of officers is already at the lowest level for more than 30 years.

This week saw the launch Chris Bryant's Protect The Protectors Private Member’s Bill, which aims to secure greater protections for emergency service workers. It carries on where my attempts in the last parliament left off, and could not come at a more important time. Cuts to the number of police officers on our streets have not only left our communities less safe, but officers themselves are now more vulnerable as well.

As an MP I work closely with the local neighbourhood policing teams in my constituency of Halifax. There is some outstanding work going on to address the underlying causes of crime, to tackle antisocial behaviour, and to build trust and engagement across communities. I am always amazed that neighbourhood police officers seem to know the name of every kid in their patch. However cuts to West Yorkshire Police, which have totalled more than £160m since 2010, have meant that the number of neighbourhood officers in my district has been cut by half in the last year, as the budget squeeze continues and more resources are drawn into counter-terrorism and other specialisms .

Overall, West Yorkshire Police have seen a loss of around 1,200 officers. West Yorkshire Police Federation chairman Nick Smart is clear about the result: "To say it’s had no effect on frontline policing is just a nonsense.” Yet for years the Conservatives have argued just this, with the Prime Minister recently telling MPs that crime was at a record low, and ministers frequently arguing that the changing nature of crime means that the number of officers is a poor measure of police effectiveness. These figures today completely debunk that myth.

Constituents are also increasingly coming to me with concerns that crimes are not investigated once they are reported. Where the police simply do not have the resources to follow-up and attend or investigate crimes, communities lose faith and the criminals grow in confidence.

A frequently overlooked part of this discussion is that the demands on police have increased hugely, often in some unexpected ways. A clear example of this is that cuts in our mental health services have resulted in police officers having to deal with mental health issues in the custody suite. While on shift with the police last year, I saw how an average night included a series of people detained under the Mental Health Act. Due to a lack of specialist beds, vulnerable patients were held in a police cell, or even in the back of a police car, for their own safety. We should all be concerned that the police are becoming a catch-all for the state’s failures.

While the politically charged campaign to restore police numbers is ongoing, Protect The Protectors is seeking to build cross-party support for measures that would offer greater protections to officers immediately. In February, the Police Federation of England and Wales released the results of its latest welfare survey data which suggest that there were more than two million unarmed physical assaults on officers over a 12-month period, and a further 302,842 assaults using a deadly weapon.

This is partly due to an increase in single crewing, which sees officers sent out on their own into often hostile circumstances. Morale in the police has suffered hugely in recent years and almost every front-line officer will be able to recall a time when they were recently assaulted.

If we want to tackle this undeniable rise in violent crime, then a large part of the solution is protecting those who protect us; strengthening the law to keep them from harm where possible, restoring morale by removing the pay cap, and most importantly, increasing their numbers.

Holly Lynch is the MP for Halifax. The Protect the Protectors bill will get its second reading on the Friday 20th October. 

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