Community reinvestment

Banking that helps? The framework of regulation and incentives that promote equal opportunities in finance in the USA has long stood out as a model for success.

The Home Mortgage Disclosure Act in the 1970s was a response to allegations of race discrimination in lending by banks. The Act required them to publish their lending data. This was followed by the Community Reinvestment Act, that widened the disclosure and added an obligation on banks to serve all the community in which they were licensed to operate.

I looked at the Community Reinvestment Act in research in the late 1990s with colleagues, that was published as “Small is Bankable” by the Joseph Rowntree Foundation. Following the report, and with the momentum of the Social Investment Task Force and many, many allies, every one of our recommendations came to fruition. It led to a Community Investment Tax Relief, the emergence of the Community Development Finance Association and a time-limited support fund for non-bank enterprise lenders.

The one thing that did not happen was disclosure on lending by neighbourhoods. Until today.

An initiative launched today by the Treasury will see the disclosure of data on lending by the main banks. It will be on a voluntary basis and without direct sanctions for failure or incentives for success. But potentially it could lead to a world in which it was entirely normal for banks to be held to account for their daily activities, rather than their periodic misdemeanours.

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