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
Show Hide image

Mass surveillance doesn’t work – it’s time to go back to the drawing board

Lacking an answer to the problem of radicalisation, the government has confused tactics with strategy.

This week saw the release of not one but two parliamentary reports on the government’s proposed new spying law, the first from the Intelligence and Security Committee and the second from the Joint Committee on the Draft Investigatory Powers Bill.

Both reports suggested the government hasn’t fully made the case for some elements of mass surveillance put forward in the Bill. But neither went so far as to ask the most important question in this debate – does mass surveillance actually work?

The proposed law, known as the Investigatory Powers Bill, looks set to enshrine almost all the government’s mass surveillance powers and capabilities in a single law for the first time. It has been touted by the Prime Minister as a vital weapon in the UK’s fight against Islamic State.

Most of the noise about mass surveillance since the Snowden revelations has predictably come from civil liberties groups. But the privacy and safeguards debate skips over the highly dubious assumption underpinning the Investigatory Powers Bill – that mass surveillance will stop terrorists.

In fact, mass surveillance is not only ineffective but downright counter-productive.

A 2009 report by the US government found that only 1.2 per cent of tips provided to the FBI by mass surveillance techniques made a significant contribution to counter-terrorism efforts. Another recent study by the New America Foundation found that National Security Agency mass data collection played a role in, at most, 1.8 per cent of terrorism cases examined. By contrast, traditional investigative methods initiated 60 per cent of investigations. Suddenly mass surveillance doesn’t seem so vital.

This is because the technology is far from perfect. As computer scientist Ray Corrigan has written, “Even if your magic terrorist-catching machine has a false positive rate of 1 in 1,000—and no security technology comes anywhere near this—every time you asked it for suspects in the UK it would flag 60,000 innocent people.”

Perversely, this lack of precision means mass surveillance can actually frustrate counter-terrorism efforts. Michael Adebolajo, who brutally murdered Fusilier Lee Rigby in 2013, was so well known to the security services prior to the attack they had even tried to recruit him as an informant. Yet insufficient monitoring later on let him slip through the net. The same thing happened with the Hebdo killers. Mass surveillance means intelligence analysts are forced to spend their time fruitlessly sifting through endless reams of data rather than carrying out the targeted monitoring and detection that’s really needed.

Counter-radicalisation experts have meanwhile argued that mass surveillance may alienate Muslim communities, making them distrustful of the police and possibly even contributing to radicalisation. In 2014, Jonathan Russell from the counter-extremism group Quilliam wrote that the “introduction of a sweeping [mass surveillance] law…will be exploited by extremists to show that the government wants to spy on its own citizens [and] that all Muslims are suspected of being terrorists.” This will set alarm bells ringing for those who know the fight against terrorism will ultimately be won only by preventing radicalisation in the first place.

And therein lies the real problem with this Bill. It’s tactics, not strategy. If we stop for a second and think about what the problem is – namely that thousands of young Britons are at risk of radicalisation – we’d never prescribe mass surveillance as the answer. It would be nonsensical to propose something that risks making alienation worse.

The trouble is we don’t have a convincing answer to the actual problem. The government’s counter-radicalisation strategy is mired in controversy. So instead a different question is being posed. Not how do we stop people from signing up to join Islamic State, but how do we gather as much communications data as possible? GCHQ have an answer for that. It’s a classic case of confusing a tactic – and a highly unreliable one at that – with a strategy actually designed to tackle the root of the problem.

Never mind our privacy for a moment. For the sake of our security, it’s time to go back to the drawing board and think of something better.

 

Andrew Noakes is Senior Advocacy Officer at the Remote Control Project. He writes about covert and unconventional methods of warfare, counter-terrorism, and human rights.