10 things you need to know about Community Reinvestment_2009_06

© Urban Forum 2008

Urban Forum has been developing ideas to change the banking system to make it more ‘people centred' in light of the recent crisis and subsequent bail-out of banks. Urban Forum believes that things must change and that fundamental reforms of the banking system are needed urgently.

Here are 10 things that you need to know....

10 things you need to know................about ‘Community Reinvestment'

Background
Urban Forum has been developing ideas to change the banking system to make it more ‘people centred' in light of the recent crisis and subsequent bail-out of banks. We are calling for the introduction of a ‘Community Reinvestment Act' and ‘community reinvestment banking'.

The recent global financial crisis has raised big questions about the sort of society and institutions that we want in the future. The huge amount of public money put into banks to prevent them from collapsing hasn't offered any benefit to individuals and communities despite the fact that we will be paying it back. Urban Forum believes that things must change and that fundamental reforms of the banking system are needed urgently.

Through the bail-out, the State is effectively underwriting the risks taken by financial institutions. If we accept that the government should provide this ‘insurance policy', which taxpayers will be repaying for years to come, then surely it's appropriate that an ‘insurance premium' should be paid to taxpayers for this cover - by way of social benefit for society.

We are calling on political parties, financial services, civil society groups and individuals to embrace the concept of community reinvestment and establish a new system of banking with a social purpose.

What are the problems we face?

• Financial exclusion: we need to eliminate the "poverty premium" that low income households pay.
• Availability of finance for social and community enterprise - more ‘mission related' investment.
• Sustainable sources of grants for community benefit - Community Reinvestment.
• Restoring public confidence in the banking sector: "people-centred finance".

If you haven't had a chance to read our proposals in full: http://www.urbanforum.org.uk/community-reinvestment/community-reinvestment-people-centred-finance-for-the-21st-century - here are 10 things you need to know about community reinvestment.

1. A ‘Community Reinvestment Act' would set about creating financial structures which are more accountable and eliminate discrimination in the way that banks operate.
2. The ‘Community Reinvestment Act' isn't new, it's a piece of US legislation that dates back to 1977 and requires that US banks meet the needs of the ‘whole' community without discrimination. The Act has since been updated several times during the Carter and Clinton Administrations and there are currently proposals to extend it to cover other financial institutions. 
3. The global financial crisis caused by sub-prime lending was not, as some critics have suggested, caused by compelling banks to lend money to people who cannot afford to repay it. Fewer than 25% of US sub-prime loans were made by institutions covered by CRA and research by the US Federal Reserve found that 94% of high cost loans had nothing to do with the CRA.
4. In the US the CRA has contributed to the growth and development of credit unions and other community based finance institutions (called CDFIs). CDFIs currently account for a tiny proportion of the UK banking sector but offer poor communities access to financial services where banks are failing to provide it. 
5. Public confidence in banks and the way they're run is at an all time low and change is needed urgently to rebuild the economy!
6. A UK Community Reinvestment Act would promote a new style of banking which would provide public benefit for the £90 billion of public funds which have bailed-out financial institutions as a result of irresponsible risk-taking.
7. Under a Community Reinvestment Act banks would still be run as viable businesses but would be providing services without discrimination and support the third sector to deliver financial and social benefits. 
8. A proportion of the profits made by banks would be reinvested into supporting community action through grants to community organisations, charities and social enterprises, providing sustainable funding at a time when public funds are diminishing. 
9. Community Reinvestment differs from the plans for a ‘Social Investment Bank' which despite being very complementary to the cause, would not challenge the way banks operate. A Social Investment Bank would provide much-needed finance for community finance, but would not address the cause of the problems - how banks operate.
10. A CRA will not address the immediate hardship that the recession brings, but we cannot afford to think only about the here and now, or the chance to change the future in the long term will be lost.

What can you do to help?

• Lend your support - If you're involved in a group or organisation you can sign up to/endorse the community reinvestment campaign by emailing: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

• Sign our e-petition - calling for community reinvestment legislation to be introduced: http://www.urbanforum.org.uk/community-reinvestment/sign-the-petition/
• Raise the issue with your elected representatives (MPs, Councillors and MEPs) and ask them to support community reinvestment. You can find out your local MP's details here: http://www.theyworkforyou.com/ . We'd also like to hear what sort of response that you get.
• Discuss - we want to know what you and others in your area think of the proposals. Do the ideas for community reinvestment sound like a good idea or are they wide of the mark? Why not put community reinvestment on the agenda for meetings you're holding/attending, or hold an event. You could even have a discussion over dinner. If you want we can help find someone to come and talk to you about the idea if that's useful. Email us: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
• Develop the proposals - our ideas for community reinvestment are still a ‘work in progress' and we want to debate and refine the proposals over the coming months in an open and inclusive way. How do you think the ideas could be delivered (we've suggested a number of possible delivery mechanisms . . . maybe you like one of these, or maybe you have another idea of your own to suggest?). How could plans for a Social Investment Bank be informed by community reinvestment principles? What could be improved? What do you like? Are there things that would be helpful to help people understand and engage with the debate?

Kate Hathway
10th June 2009