As consumers across the UK prepare for the last full
shopping weekend before Christmas, a new report from nef (the new economics
foundation) and the US-based Woodstock Institute says that UK banks could be
doing much more to help some of the poorest people in the UK, simply by being
clear and open about where they do business.


The report, Full disclosure: why bank transparency
matters, released today, Saturday 16 December, provides the first detailed
comparison with the US,
where banks have disclosed information since the mid-1970s.  It shows how information revealed by the
banks has been used to combat financial exclusion in some of the most deprived
areas of the US, and has played a pivotal role in ensuring that over US$4.2
trillion of loans and credit reach people living in low income areas.  nef believes that bank disclosure in the UK
could prompt a real shift in the way banks view, act in and invest in some of
the UK’s most
disadvantaged areas.


For the quarter of UK
households denied access to mainstream credit, it is more vital than ever that
banks disclose full information about their branch location, basic account
provision and lending.  The recent
scandal over the collapse of Christmas saving scheme Farepack again revealed
the vulnerability of those on very low incomes. 
And, with an estimated 3,000 post offices set to close over the next two
years, accurate information on the availability of banking services in vulnerable
communities will be critical in the fight against financial exclusion.


“While the headlines focus on legitimate concern about
levels of credit card debt among average consumers, the real scandal this
Christmas is that the most vulnerable people in Britain are prey to interest
rates ten to forty times higher than a credit card for small loans for
children’s toys or to meet a winter gas bill, or must trust loosely regulated
savings schemes.  Bank transparency on
lending practices and branch location by postcode would mean that the availability
of banking services could be clearly identified – a central part of tackling
financial exclusion.” says Jessica Brown, Head of Access to Finance at nef and
lead author of the report.


Full disclosure illustrates the practical value of bank
disclosure through detailed case studies comparing Charter One Bank in Chicago
in the US –
where banks have disclosed local lending practices since the late 1970s, with
its parent company Royal Bank of Scotland
in Manchester – to review the level
of information available and the impact that this has.  The report, endorsed by the chair of the
Treasury’s Social Inclusion Task Force, Sir Ronald Cohen, sets out to
reinvigorate the debate on bank disclosure in the UK
and to create a better understanding of why it should be demanded of banks.
While some UK
banks have taken steps to release selected information on their activities in
disadvantaged areas, there is still a significant and damaging gap in publicly
available information.


The report contrasts the simple, publicly available
information in the US
with the available information on small-business lending, bank branch
availability and basic bank account opening in deprived areas of Manchester
– three critical components of UK
policy relating to financial exclusion.  
The analysis shows that in the UK;
data on these factors is generally difficult to obtain, has to be gained from a
multitude of sources, is inconsistent, and in many cases incomplete.   The paucity and inconsistency of publicly
available information in the UK
means that it is not possible to draw any meaningful conclusions on banks’
progress in tackling financial exclusion in an area like Manchester.  By contrast, detailed and meaningful analysis
can be carried out with the information that US banks disclose by area which in
turn can be used to combat financial exclusion.


In the US,
publicly available information has been used to keep bank branches open in low
income communities, and directly combat financial exclusion.  For example:


    * In September
2003 HSBC announced the closure of two of the very few remaining branches in
lower income communities in Buffalo City, New
Community organisations were able to analyse HSBC’s performance from
publicly available data on the local area and use this to make a case that
persuaded the bank to keep one branch open and operate a combined community
centre and bank in the other

    * When JP
Morgan Chase acquired Bank One in 2004, community organisations in Chicago
were able to negotiate consistent disclosure and systematic monitoring of its
lending practices which resulted in a total of $80 million in community
development loans provided in the Chicago
area every year.


nef’s assessment of bank disclosure in the UK
reveals that there is still virtually no area-based disclosure by UK
banks.  And, the report says,
transparency can also highlight the positive contribution banks make to
deprived communities and can facilitate working partnerships between banks,
third-sector lenders, and other community-based initiatives to build new
products and operating models.


“Six years ago, the Social Investment Taskforce
recommended that bank disclosure should be made on a voluntary basis. To date,
this has achieved only partial success, I believe that the time is right to
re-examine what is required to bring about a robust commitment on the part of
the banks to disclose their lending patterns in the UK,”
says Sir Ronald Cohen, the Chair of the Social Investment Taskforce.


Transparent and public information on the services that
the banking sector provides to deprived communities means that:


    * It is
possible to identify who the banks are actually reaching, and who remains
outside of the banking system.

    * Financial
exclusion is often localised, meaning that banks need to disclose information
on a local-area basis that is consistent with measures of deprivation.

    * Bank
transparency can ensure the effective targeting of scarce resources to deprived
areas, and information on which banks positively invest in local areas can give
local authorities the information that they need to attract the best performers
to their community.


Without area-based bank disclosure, communities are left
in the dark on how their savings and resources are being invested. The report
concludes that since voluntary disclosure by the banks in the UK
has not achieved significant results, the Government should now consider
mandatory bank disclosure along the lines of the Community Reinvestment Act in
the US as a key
component of the fight against social exclusion.