News this week that the seven largest banks and building societies have agreed to publish information about their lending is very welcome. The voluntary arrangement will see banks publishing quarterly figures on loans and overdrafts to SMEs, mortgage lending and unsecured personal loans by postcode. This is a hugely important first step towards reforming our financial services into a more responsible and properly functioning sector.
Some may wonder why this information is so important and why numerous campaigns over a number of years, including the Better Banking Coalition, have called for greater transparency of bank behaviour. The fact is that until we know how well banks are serving local communities, we cannot hope to identify unmet need and address gaps in provision. Amazingly millions of pounds of public money have been spent over many years tackling financial exclusion, without ever having this data. Quite how the government thought that the problem could be addressed without knowing where the market was failing I don’t know, but now we have the chance to address that.
Disclosure of bank lending is also important as it has been shown to be an important first step towards further change. In the US the Home Mortgage Disclosure Act was introduced in 1975, leading to a succession of further reforms, such as the Community Reinvestment Act and Responsible Banking Ordinances, all built on disclosure.
Access to this information can enable local communities, not-for-profit groups, the media and policy makers (we can hope right?) to hold financial service providers to account and challenge them if they fail to serve particular areas.
However everything isn’t totally sorted just yet…
The arrangement is voluntary and while that may be okay, there’s obviously a degree of uncertainty with that approach. We have voluntary arrangements for food manufacturers over food labelling, and what we’ve seen in that sector is the emergence of different ways of presenting information which make comparison hugely difficult for consumers. If we see similar differences in how bank lending data is published it will severely hamper the ability to make use of the data.
There are (as is the case with much the open data) issues around the way data is published and we must hope that banks do not try to inhibit the use of their data by putting it in a format which is difficult to use, like a pdf.
Then there is the fact that the data will be released on a postcode basis. Whilst this might sound sensible, actually postcodes are pretty big areas and the subtle differences within a postcode will be lost by aggregating the information in this way. At Better Banking we were clear that reporting had to be done at the lowest available size – which is Lower Super Output Area (LSOA) – in order to really understand what was going on. It is disappointing that the data will only be published by postcode, as it would not be any more work for the banks to do it by LSOA. I can only assume that they feel they are less exposed to the risk of being challenged by doing it on a postcode basis.
And then finally, there is the challenge of making sure the data is put to use. The value of banks’ disclosing information will only come about if people analyse the data, overlay it with other data – such as incidence of payday lenders, or the presence of credit unions and community development finance institutions – and find ways of presenting it. Developers will be needed to help campaigners, not-for-profit groups and local communities to make sense of the data and use it to bring about change. We will also need to raise awareness among consumers to highlight poor or good practice, and encourage them to make informed decisions about who they bank with.
Consumers need to start flexing their muscles – not just individuals, but local authorities, pension fund managers and other institutional investors – but they will need support from developers and analysts to make best use of the data.
Disclosure of bank lending is very welcome but it simply signals the next phase of a long road to a properly function and socially productive financial services sector.