Download Financial Abandonment in Britain and the United States

Geographies of Financial Exclusion: Financial Abandonment in Britain and the United States
Author(s): Andrew Leyshon and Nigel Thrift
Source: Transactions of the Institute of British Geographers, New Series, Vol. 20, No. 3 (1995),
pp. 312-341
Published by: The Royal Geographical Society (with the Institute of British Geographers)
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312
Geographies of financialexclusion: financial
abandonmentin Britainand the United
States
Andrew Leyshon and Nigel Thrift
Financialexclusionrefersto those processesthatpreventpoor and disadvantaged
social groupsfromgainingaccess to the financialsystem.It has important
in
forunevendevelopmentbecause it amplifiesgeographicaldifferences
implications
levels of incomeand economicdevelopment.In recentyearsthe financial-services
exclusionaryin
industryin the UnitedStatesand in Britainhas become increasingly
responseto a financialcrisisfoundedin higherlevels of competitionand extreme
levels of indebtedness.The processesof financialexclusionare documented.An
of
alternatives
alternativeagenda to fosterresistanceand help constructinstitutional
benefitto low-incomecommunities
currently
being excludedby the financialsystem
Resistanceto financialexclusionand the buildingof an alternative
is formulated.
will be significantly
enhancedif the processesof exclusionare
financialinfrastructure
consideredin the contextof a notionof 'financialcitizenship'.
key words financialexclusion financialabandonment unevendevelopment
of accumulation citizenship
urbanpolitics alternativeinstitutions
Departmentof Geography,Universityof Bristol,BristolBS8 ISS
revisedmanuscriptreceived I September1994
Introduction
In recent years there have been two striking
crisestrigger
examplesof theway in whichfinancial
of financialflows and
Financialcriseshave profoundeconomicand social geographicalredistributions
The firstwas the less develconsequences. They tend to induce what the financialinfrastructure.
financial-services
industrydescribesas a 'flightto oped countries'(LDCs) debt crisis of the early
to take
1980s. The crisiscaused net capitaltransfers
quality'; that is, a search for 'safer' markets,a
in favourof place between LDCs and North America,Europe
process which tends to discriminate
more affluentand powerful social groups and and Japan, therebycontradictingthe normative
economics that funds
againstpoor and disadvantagedgroups.This much expectationin international
is well-knownand widely acknowledged.What is flow only from developed to less developed
less widely acknowledgedis that this process of countries(Corbridge1988, 1992, 1993; Corbridge
arose
also has important
discrimination
geographicalout- and Agnew 1991). Thisunusualstateof affairs
banks
The when,in responseto the crisis,international
comes,of whichtwo are particularly
important.
of credit
firstis thatnew patternsof credit-creation
emerge refusedto lend to LDCs. The reorientation
as moneyand creditis redirected
away frompoorer flows was followedby the closure of the offices
to richer(and therefore
'safer')groups.The second of internationalbanks in developing countries.
is that new patterns of financialinfrastructureBetween 1980 and 1985 the world's 100 largest
develop as financialinstitutionsrestructuretheir banks closed 24 per cent of their officesin
operationsover space to bringtheminto line with LDCs (United Nations Centre on Transnational
thesenew flowsof creditand debt.
Corporations1988).
TransInstBr GeogrNS 20 312-341 1995
ISSN 0020-2754 ?0 Royal GeographicalSociety (withthe Instituteof BritishGeographers)1995
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offinancial
exclusion
Geographies
313
The second examplefollowedin theaftermath
of system.Withoutaccess, the conduct of everyday
the developed countries'debt crisis of the early life withina contemporarycapitalistsociety can
1990s (Leyshon and Thrift1993; Leyshon et al. become extremelyproblematic.
One reasonforthis
1993) which was engenderedby the process of has been thegrowthof non-cashfinancialtransmisrestructuring
followingthe LDC debt crisisof the sions whichnow accountfora thirdof all financial
bothin Britainand in theUnitedStates
early 1980s. Having abandoned the LDCs, the transactions,
international
banksbegan to seek out new custom- (Warley1994). Employeesmayfindit moredifficult
ers in thedevelopedcountries:fromtheearly1980s to get paid unless they have a bank account,as
onwardslarge amountsof creditwere providedfor employerspreferto pay wages and salaries via
the constructionand purchaseof property(Warf directcredittransfer
for reasons of efficiency
and
1994), to facilitatewhat were oftenaggressiveand security.For similar reasons governmentsalso
(Clark attempt to use non-cash financialtransmission
predatoryroundsof corporaterestructuring
1989a) and to supportthe consumptionof goods whereverpossible. An increasingnumberof penand servicesby individualsthroughpersonalloans sions and benefitsare paid by credittransferor
and othercreditfacilities.'
crossed cheque in Britain,despite the fact that as
It was in thisway thata new exclusionary
pattern manyas 35 per centof people who receivebenefits
of financialrecyclingemerged. Whereas, in the are not in possessionof eithera bankor a building
1970s, thefinancialsystemhad recycledfundsfrom society account (National Association of Citizen
in the 1980s Advice Bureaux1993). It is also farmoredifficult
to
developed to less developedcountries,
money tended to remainwithinthe orbit of the pay bills withoutthe intermediation
of a financial
at everfasterrates institution,
while it is all but impossibleto obtain
developedeconomies,circulating
within the tri-polarworld economy of North credit from a bank or building society without
America,Europe and south-eastAsia (Thriftand evidence of a historyof personalbanking.For all
Leyshon 1988). At the same time, the principal these reasons,access to retailfinancialservicesis a
means by which credit was created was trans- social necessitywithina contemporarycapitalist
creditwas supersededby economy.
formed,as intermediated
disintermediated
In Britain,the United States and other core
credit (see Leyshon and Thrift
1992, 1993; Thriftand Leyshon1988).
capitalistcountries,the financial-services
industry's
In the wake of the debt crisisof the early1990s 'flightto quality'promisesto have severesocialand
in the developed countries,the financial-serviceseconomicconsequencesforthosegroupsand localihas made a typicalresponse.First,therehas ties whichare at the wrong end of the process of
industry
been a redirection
ofcredit,away frompoorersocial financialexclusion.These developmentssignal an
assaultby
groups and towards richergroups as part of a insidiousand relativelyunremarked-upon
strategyof risk-avoidance.
Secondly,therehas been financialcapital upon poorer and disadvantaged
a processof financialinfrastructure
this groups. It contrastswith the more spectacular
withdrawal,
time withindevelopedcountries.In other words, assaults launchedby financialcapital against such
financialcapitalis retreating
to a middle-classheart- groups during the 1980s, which displaced and
land, a process whichechoes the earlierretreatof disruptedmany communities
livingin the shadow
financial
land and propertydevelopmentsas
capitalto thedevelopedcountriesfromthe of high-profile
LDCs in the earlyand mid-1980s.
documentedin cities such as London,New York,
The withdrawalof financialcapital from the Los Angeles,Baltimoreand manyothers.2
LDCs resultedin what Corbridge(1993) describes
The emergenceof the developed countries'debt
as a lost decade of development,duringwhichreal crisis,foundedpartlyin the debts accumulatedby
per-capitaincomesfell precipitously,
development the failureof large-scalepropertydevelopmentsto
projectswere cancelledand infantmortalityrates attractsufficient
tenants,means that such highly
remainedat alarminglyhigh levels. It is important visibleassaultswill be thinon the groundover the
to be remindedof the tragedyof the development nextdecade or so. It willbe theproblemsthatstem
crisisof the LDCs in orderto place the process of froman inabilityto access the financialsystem,and
financialinfrastructure
withdrawalin developed the associated process of financialinfrastructure
countriesin its propercontext.Nevertheless,it is withdrawal,which will become increasinglywidedifficult
formanycitizensof spread. Holes are beginningto appear in the gebecomingincreasingly
developed countriesto gain access to the financial ographyof retailfinancial-services
provisionwithin
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314
developed countriessuch as Britainand the United
States.The emergenceof these spaces of financial
exclusion has importantimplicationsfor uneven
developmentin thesecountriesforsuch spaces are
associated with economic decline and attendant
social problemssuch as povertyand deprivation.
This paper has two main objectives.The firstis
simplyto documentthese exclusionaryprocesses,
drawingupon evidencefromthe UnitedStatesand
Britain.The second is to begin to formulatean
alternativeagenda that will fosterresistanceand
help to constructinstitutionalalternativeswhich
will deliver basic bankingand low-cost loans to
low-incomehouseholds.The remainder
of thepaper
is, therefore,
organizedinto fourmainparts.In the
followingsectionwe makean attemptto come to a
theoretical
of the processesof finanunderstanding
cial exclusionand theirrelationto unevendevelopment.In doing so, we drawupon theworkof Gary
Dymskiand JohnVeitch (1992) to argue that the
tendencytowardsexclusionis endemicwithinfinancial capitalbut thatthistendencywaxes and wanes
at varioushistoricalconjunctures.
Next we look at
one such conjuncture- the crisis of the British
financial-services
industryin the late 1980s and
early 1990s - and at the ways in which thiscrisis
has served to encourage the industryto adopt a
rubricof exclusion.Finally,we look at the possibilitiesfor both resistingthe process of financialinfrastructure
withdrawaland counteringthe effects
of financialexclusion by building an alternative
financial
firstin theUnitedStatesand
infrastructure,
thenin Britain.The conclusionssuggesttheneed to
frametheargumentmade in therestof thepaperin
termsof an idea of 'financial
citizenship'.
Financial exclusion and uneven
development
We use the term'financialexclusion' to referto
those processesthatserve to preventcertainsocial
groups and individualsfromgainingaccess to the
financialsystem.Althoughthe criteriaforexclusion
may vary over time,the financialsystemhas an
inherenttendencyto discriminate
againstpoor and
disadvantagedgroups.In otherwords,the poorer
and more disadvantagedan individual,the more
likely it is that they will be excluded fromthe
financialsystem.The reason for this is that the
financial-services
industryoperates in a way that
favoursthe socially powerful.Consider how the
cost of money is calculated withinthe financial
AndrewLeyshon
andNigelThrift
The
cost
of
is
system.
money determinedby the
level of riskwhicha financialinstitution
believesit
incursin lendingmoney to a borrower.The perceived level of risk is inverselyrelated to the
likelihoodof theborrowerrepaying.The higherthe
perceivedlevel of risk,the more a financialinstitution will ask a borrowerto pay; or, conversely,the
more likely it is that the borrowerwill repay
the loan, the less theywill have to pay forit.
There are three factorswhich are taken into
account when calculatingthe risk incurredwhen
lending money. First,risk is determinedby the
lengthof timethatthe moneywill be out on loan.
The longer the borrowerrequiresthe loan, the
more riskyit is consideredto be for the lender
because the circumstancesof the borrowermay
change over time,makingit less likely that the
money will be repaid. This means that the more
quicklythe loan can be repaid,the less it will cost.
This state of affairstends to favour those with
greater financialresources, since they will be
able to pay back the money more quicklyand,
at less expense.
therefore,
Risk is also determinedby the purpose of the
loan. Money borrowedto purchasespecified,
tangible assets (suchas property)willusuallybe cheaper
than other sorts of loans (such as personal loans
which are for non-specificpurposes) because the
propertyrightsto the assets boughtwiththe loan
can be held in securityby the lenderuntilthe full
paymentof the loan is made, as in the case of
mortgageson property.Since the ownershipof the
assets resideswith the lenderuntilthe fullrepaymentof the loan, the lendercan always attemptto
sell theassetto recoupthemoneyborrowedagainst
it should the borrowerdefault.This means that
lendersare betterdisposed to lend money forthe
purchaseof assetswhichare perceivedto hold their
value over time.In the case of property,all other
things being equal, lenders are keener to lend
money for investmentin more valuable property
markets.Finally,riskis determinedin largepartby
the perceived'credit-worthiness'
of the borrower,
an assessmentwhich is based not only on some
indicationof the extantwealthof theborrowerbut
also on an estimateof theirfutureincome which
indicationof how likelyit is thatthe
gives a further
loan will be repaid.
For all these reasons theretendsto be a strong
relationshipbetween the economic power of a
borrowerand the ease withwhichtheygain access
to the financialsystem.In addition,the economic
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315
are
to
outside
the
'formal'
financial
forced
look
much
a
also
determine
how
of
borrower
may
power
they have to pay forthe privilegeof such access. systemforcredit.
If gaining access to credit from the financial
The reason why rich and powerful economic
largelyby incomeand wealth,
agents find it easier to gain access to credit is systemis determined
because they are more 'visible' to the financial then the geographyof incomeand wealth shapes
system.But,
system.The most powerfuleconomicactors,such thegeographyofaccess to thefinancial
as transnationalcorporationsand governments, as Dymskiand Veitch(1992) argue,therelationship
can borrowmoneyat verylow ratesof interestin is an interdependent
and circularone; the geograwholesale financialmarkets.They can do this by phy of incomeand wealthis determined
in partby
borrowingmoney in 'spot' credit markets.Here the geographyof access to the financialsystem.
large amountsof creditare available at very short Througha processwhichtheydescribeas 'financial
notice, since information about the credit- dynamics',geographicalvariationsin access to the
worthinessof borrowersis knowna prioridue to financialsystemdeepen and accentuateprevailing
the existence of publicly available information levels of unevendevelopment.In otherwords,rich
of areas tend to get richerand poor areas poorer
about them.3Assessing the credit-worthiness
borrowersin wholesalefinancialmarketsconsumes because of the way in which the financialsystem
betweenpeople and communitieson
a great deal of time and energy. This task is discriminates
undertakennot only by the legions of analysts the basis of risk.
firms
Thus, Dymski and Veitch (1992) argue that an
employed by all the large financial-services
but also by a cohortof independentcredit-rating urbansystemrequirestwo typesof development.In
agencies, such as Standard & Poor or Moodys the firstinstance,
(Sinclair 1994). In such markets,the balance of
extensivedevelopmentinvolves the conversionof previously
power tends to lie with the top-ratedborrowers, agriculturalor undeveloped land to residential,commercial,
since they are able to choose between a wide
and industrialuse. (ibid.,5)
range of potentiallenders,all of whichwould like
to extend money to what are perceived to be This typeof developmentis highlycapital-intensive
extremelygood creditrisks.
and is undertakenat great expense by large
But only a privilegedfew have access to the land and property developers. However, the
cheap creditcirculatingin the wholesale financial 'development'of an urban systemdoes not end
markets.The majorityof borrowershave to obtain there:
credit fromwhat Dymski and Veitch (1992, 12)
describe as 'contract'credit markets.The reason
Once a community's
infrastructure
is in place,conon the borrower,from
forthis is thatinformation
tinuedgrowth
andprosperity
albeit
financing,
requires
of a different
character.
Residentsand businesses
which the financialinstitutionscould calculate
withinthe community
have an ongoingneed for
is not immediatelyavailable. In such
credit-risk,
financial
Further
services.
residential
itself
development
in favour
marketsthebalanceof power shiftsfirmly
does
not
but
it
changes
disappear,
qualitatively:
of lenders.
The borrowerhas to approachthe lender
becomesintensive
ratherthanextensive. . . Creditis
in
will
the
borrower
to
submit
turn,
who,
require
and property
necessaryfor rehabilitation
improveto an assessmentof credit-worthiness
beforeany
credit
allowsproperty
turnover.
Busiments;
mortgage
credit will be granted.'Contract'credit is more
nessesrequireworkingcapital,and thenexpansion
expensive than 'spot' market credit, not only
as theymature.These creditflows,along
financing
in the
because thereis a large absolute difference
withreadilyavailablebanking
facilitate
conservices,
tinuedeconomicgrowthin a maturing
power and wealth of borrowersparticipatingin
community.
these marketsbut also because it is far more
(ibid.,7, emphasis
added)
of
expensive to determinethe credit-worthiness
borrowersin them as the information
needed to
It is in thissecondaryphase of 'intensivedevelcalculate any credit-risk
incurredhas to be un- opment'that the financialsystemdeepens uneven
covered and disclosed.4Unlike spot or wholesale developmentwithinan urban system.In normal
the financialsystemwill not only be
markets,the cost of money in contract-creditcircumstances
marketsdoes not tend to vary too muchbetween more disposed to lend to those areas withhigherincomes,sinceborrowersin suchareas
borrowers.5However, the implicationsfor those than-average
who do not qualifyas 'good' risksare severe:they are,on thewhole,seen to be bettercreditrisks,but
offinancial
exclusion
Geographies
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316
AndrewLeyshonand Nigel Thrift
financial-services
firmswillalso tendto lend greater
volumesofmoneyto suchareaspercapita,sincethe
amountof creditavailableto a borroweris usuallya
multipleof income.
The cumulativenatureof sucha selectiveprocess
of creditprovisionbecomesparticularly
noteworthy
when the money is advanced for the purchaseof
fixedassets suchas residential
geographically
property.When moneyis advanced forthe purchaseof
such assets, the rightsare retainedby the lender
untilthe loan is fullyrepaidand the 'immovability'
of such assets means thatthe 'characterof the area
surroundingthese assets entersinto the determinationof the value of the assets themselves'( ibid.,
9). This means thatthe decisionto advance money
for the purchaseof geographicallyspecificassets
'necessarilyinvolvesan assessmentof thelong-term
prospectsof thatplace' (ibid.,10). Such assessments
have obvious implications,for the corollaryof
areas is the relativeneglect
favouringmoreaffluent
of poorerareas. This can lead to a
downwardspiralof decline.. as residents[of such
areas]findit hardto sell or buy property
[while]
areunableto obtaincredit.
businesses
(ibid.,
34)
The crisis of the Britishfinancial-services
industryand the rise of financial
infrastructure
withdrawaland financial
exclusion
of the financial
Althoughthe structural
predilection
systemto favourthe rich and powerfulover the
poor and powerlesshas importantimplicationsfor
uneven development,it may be amelioratedor
intensified
at particularhistoricalconjunctures.In
Britainduringthe 1980s, the re-regulation
of the
financialsystemencourageda greaterlevel of comfirms.More
petition between financial-services
people than ever before were drawn into the
financialsystemas it became far easier to obtain
credit. The level of outstandingpersonal debt
increasedfrom?9.8 billionin 1980 to ?52.5 billion
in 1993 (or from?23.1 billionto ?50.7 billionat
constant1990 prices).At the same time,the financial systembegan to move into new partsof the
housing market.Indeed, it seemed at times that
for the financialsystemin
nowherewas off-limits
this regard. Mortgages were advanced for the
areas
purchaseof propertiesin run-downinner-city
and even for houses bought in decaying publicsector housing estates under the government's
'Rightto Buy' legislation.As home ownershiprose
to unprecedented
levels (67 per centof all housing
was owner-occupiedin 1989), the financialsystem
began to reach into nooks and cranniesof the
British social fabric which it had previously
to the financial
shunned,producingcommitments
systemwhichwould prove to be regressivein the
yearsto come.
In the 1990s, the pendulumbegan to swing the
otherway. To recompensefortheoverextensionof
creditduringthe 1980s, the financialsystemnot
only rediscoveredthe meritsof cautionbut is now
makingit a competitivestrategyin its own right
as it supports a wider process of restructuring
(Leyshon and Thrift1993). The retreatof the
financialsystemto itstraditional
middle-class
heartland,makesperfecteconomicsense to thefinancialservicesindustry,
given the natureof the crisisthat
it faced.But,as Susan Christopherson
(1993, 285)
pointedlyremindsus,
forindividual
firms
whatis usefulandrational
within
thecontext
ofa particular
setofmarket
rulesmaynot
be in theinterests
oftheeconomyas a whole.
thecrisisoftheBritish
Optingforexclusion:
services
in the1990s
financial
industry
The crisisfacingthe financial-services
industryin
Britainduringthe early 1990s was manifestedin
threemain ways. First,intensecompetitionwithin
financialmarketsbegan to eat into the revenuesof
financial-services
firms.
Duringthe 1980s, therewas
a markedincreasein thenumberof firmsparticipating in financialmarkets,mainly as a result of
neo-liberalre-regulation
loweringthose barriersto
thenumberof
entrywhichhad previouslyrestricted
financial
firmsallowed to competein any particular
market(Gentle 1993). So long as the volume of
marketscontinuedto expand,as
businessin financial
it did throughmuchof the 1980s, thegrowthin the
had relativelylittle
numberof marketparticipants
effectupon overall profitlevels in the financialservicesindustry.But when the financialmarkets
began to contractfrom 1989 onwards,financialof a more
the effects
servicesfirmsbegan to suffer
crowded marketplaceand a phase of destructive
competitionwas usheredin.
Secondly,most financialservicesfirmsare saddled with operationalcosts which are extremely
highin comparisonto those borneby firmswithin
otherindustrialsectors.It has been estimatedthat
during the 1980s the operatingcosts of British
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offinancial
exclusion
317
Geographies
In orderto tacklethe problemsof competitivebanksaccountedforas muchas 65 per centof their
gross income (OECD 1992). Such costs were a ness and highoperationalcosts,theBritishfinanciallegacy of the 'structuralregulation' which the services industryhas undergone an extensive
reformsof the 1980s swept away but which had process of labour-market
restructuring
involving
servedto insulatefinancialmarketsand institutions severalroundsof redundancyand the introduction
fromone another.In essence, highlyoligopolistic of moreflexiblesystemsof workingforthose who
firms
marketsfor remain.6For similarreasonsfinancial-services
conditionswere encouragedin financial
their
structures
and
have
been
within
the
financial
fearthattoo muchcompetition
remaking
corporate
sectorwould serve only to destabilizewider pro- cultures.This has involvedstreamlining
managerial
cesses of capital accumulation(see Leyshon and levelsand reorganizing
operationsover space. Firms
As a more competitive have introducednew spatialtemplatesof responsiThrift1992, forthcoming).
to turna profit, bilityand controlwhich have facilitateda more
marketplacemade it more difficult
firmsbegan to investigateways of criticalappraisalof the value of each level within
financial-services
reducingtheburdenof theirheavy operatingcosts. theircorporatestructures.
The branchnetworksof financial-services
firms
of the crisisfacingthe
The thirdmanifestation
in
have
these
was
an
of
financial-services
debt,
industry
figuredprominently
overhang
appraisalsfor,
muchof it bad debt.Duringthe early1990s, levels while branches are the distributionpoints from
of debt in developed countriesapproachedor,as in whichthe bulk of retailfinancialservicesare sold,
the case of the UnitedKingdom,surpassed100 per theyare also responsibleforgeneratingmostof the
centof net income.This meantthatthe demandfor costs incurredby such firms.7
But branchnetworks
debt-relatedfinancialproducts fell sharply,since have also figuredstronglyin the effortsof the
industryto tackle the problems
manypeople were unable or unwillingto continue financial-services
fundingpurchaseswithcredit.At the same time,a posed by general indebtednessand the need to
markets. Branchsignificant
proportionof thecreditadvancedduring develop investment-orientated
the 1980s has subsequentlybeen destroyedin the restructuring
programmeshave, therefore,been
rash of corporateinsolvencies,personalbankrupt- informedby a sensitivityto spatial variationsin
cies and mortgagedefaultswhichreachedepidemic costs and profitability,
and in levels of debt and
proportionsduring the early 1990s. In addition, perceivedrisk.In Britain,accordingto Gentle and
in Marshall (1993), this has meant a fasterrate of
bankshave been forcedto be more circumspect
theirlendingbehaviourbecause of the imposition branchclosure in ruralareas than in urban areas,
of new internationalregulatorystandardswhich since it is more expensive per capita to serve
requiredthatall banksin the reportingarea of the customersin ruralthanin urbanareas. In addition,
BankforInternational
Settlements
maintaincapital- therehas been a fasterrateof branchclosurein the
asset ratiosof at least 8 per cent (thatis, forevery south than in the northbecause indebtednessis
?100 they lend they must
?8 in a reserve higherin the south than in the north(Gentle and
fundin case of default). .place
Marshall1993).
For these reasons the financial-services
But concerns about branch-restructuring
industry
prohas begun to turnits attentiontowardsinvestment- grammeshave been voiced most often in urban
relatedfinancialproductswhich offerthe greatest areas. Here, or so it is claimed,the geographyof
reflectsan existingpatternof
prospectsforgrowthduringthe 1990s. The indus- branchrestructuring
try is helped in this regard by the progressive incomeand class (Leyshonand Thrift1993, 1994).
dismantlingof what remains of the Keynesian For example,a recentsurveyin Birmingham
by the
welfare state (Jessop 1993), which is effectively Bankof Englandrevealedthata selectivepatternof
forcingindividualsto maketheirown provisions,be branchclosuremeantthatby theearly1990s fiveof
it throughthe purchaseof healthinsurance,invest- the city's 39 electoralwards had already lost all
mentin a personalpension or merelybuildingup theirbank and buildingsocietybranches,whilsta
savings forthe future(Hutton1993). In thissense furthersix wards containedonly a single branch
we are arguablywitnessingthe 'Japanization'
contained28
of the (Conaty 1993). The wardsso affected
relation.Japanis the industrialized per cent of Birmingham's
welfare-savings
population,among them
statewithboth the highestpropensityto save and some of the city'spoorestinhabitants.
thelowestlevel of statewelfareprovision(Leyshon
Certainly,there are good reasons to suppose
1994).
thatthereis a relationshipbetweenan underlying
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AndrewLeyshonandNigelThrift
318
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With 2,600 quoted companies on the London Stock
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no end ofnew private
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plansIing introluceddaily,itis virtually
kir
to
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have
thedepth(if
impossible private
knowledgeneededto activelymanagetheirassets.
It is the role of Lloyds Private Banking advisers
to
make
subsidiary
moneyworkharder.As a wholly-owned
of
LloydsBankand a memberof IMRO,theinvestment
thecompanyhas
management
regulatory
organisation,
an unrivalled record of success in personal asset
management, with ?4.5 billion under its direction.
Within
as Bristol
yardsof suchfamouslandmarks
Zoo, CliftonDowns and CliftonCollege, for 126
years the company's new offices were a family
hollle, when P'embroke Road was no more than
home
w n
at
Ri t
s am the
Leave the M5 (north Ix)und or south
lxund) at junction 17 and follow the
Peot
agreeable title of Gallows Acre Lane..."
signs for Bristol City centre and Clifton,
Todayithas l en transformed
intoa mxiernsuite
withthelatestin business
(f
officesbristling
technology.
D)esignedto retainand highlight
manyoriginalVictorian
features,
131 Pembroke
Roadnow takeson
na
ApproachingfromsotthBristolor the
M32,Cliftonis well sign-posted,
as are
the
gardens, which carry the
zox~logical
new
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the
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prtected
parking,
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The asset management service is only available to persons aged 18 or over. Furtherdetails of the credittermsofferedby Lloyds
Lloyds Bank, 71 Lombard Street,London EC3P' 3BS or fromany branch of LloycdsBank.
of IMRO
a nwmtnlx'r
lI'liishlcdlh~y
IJoyk 'rivte Ianking Limited,
and an indclmndenl
PRATE
ANMG
IankPIlcare available from
financialadvi'r,
Figure 1. Moving up-market:advertisementfor Lloyds Private Bank in Bristol
geographyof incomeand class, and the patternof interestincometo cover the costs of runningtheir
financial-servicebranch closure (Christopherson accounts.
Those who do maintainadequatebalanceswill,of
firmsless
1993). Not only are financial-services
willing to lend money to customerswith low course,continueto enjoy 'free'bankingservices.
incomes and meagre financialresourcesthan they This is not just because theirdeposits enable the
were in the 1980s but such customerscan also be banks to make enough moneyfromthemto cover
expensive to service.Indeed, those of them who the costs of servicing their accounts but also
succeed in managingtheiraccountsby maintaining because theseare thecustomersto whom thebanks
financialproducts.
low creditbalancesactuallyrepresenta drainon the wish to sell investment-related
banksresources.'Free' banking,whichbanksintro- The shiftof emphasisaway fromdebt-related
prodduced in the 1980s to attractnew business,means ucts to the sellingof investmentservicesis a clear
that prudent low-income customers incur no 'flightto quality' as banks and other financialcharges.But theiraccountsare not largeenoughfor services firmsseek to move theircustomerbase
investmentincome to up-market'
the banks to earn sufficient
and
and to refocusupon higher-income
cover the fixedcosts of servicingtheiraccounts.8 wealthiersocial groups.
This move has been most clearlymarkedby the
The losses caused by such customershave been
of the 'prime' or 'premier'banking service,
rise
levied
the
offset
by increasing charges
against
partly
services- in the
those runningup overdraftsbut banks are con- wherebybanksprovidepreferential
chargesforthosewho failto shape of higherratesof intereston depositsand an
sideringre-introducing
run balances high enough to generate enough attentiveregimeof 'customercare' - to those who
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All use subject to JSTOR Terms and Conditions
offinancial
exclusion
Geographies
319
can afford
it.These servicesare highlyexclusionary. has worryingimplicationsfor the futuredevelopNational Westminster's
premierserviceis open to mentof such communities:
anyone withan annualincomeof at least ?25 000
thepresence
ofa financial
infrastructure
First,
improves
per annum,while to take advantage of Barclays
theviability
ofanycommunity
as a development
site.
Bank's premier service an income of at least
A localfinancial
infrastructure...
[lowersthecostof]
?30 000 is required.An incomeof at least ?50 000
... financial
transactions.
Thisenhancestheamenities
is required to open a 'premier' account with
of the community,
and hence the value of
MidlandBank.For thetrulyaspirationalor the'high
assetslocatedtherein.
Second,a
geographically-specific
net worth individual',Lloyds Bank can offerthe
institution
locatedina givencommunity
hasa
lending
servicesprovided by its PrivateBankingdivision
in gathering
costadvantage
information
and
potential
has startedto
(Fig. 1), while NationalWestminster
hencein lendingtherein.
Financial
institutions
gather
build a branchnetworkon behalfof Coutts Bank,
information
on small borrowers- incomelevels,
its private banking subsidiary,which carriesthe
accountbalances- as a byproduct
of the financial
services
Andtheirproximity
to borrowadded cachetthatit is the bank reputedto be used
theyprovide.
ersreducestheircostsof assessinganygiveninvestby various membersof the Britishroyal family
mentproject
inthearea. . . Third,
thephysical
distance
(Leyshonand Thrift1993).
betweenlenderand borrowers
affects
the kindof
The corollaryof thismove 'up-market'
has been
information
thatis used to assessborrowing
projects
to place less emphasisupon those servicesforthe
withina community.
Whena lendinginstitution
is
restof the population.10Similarmoves are afootin
locatedwithina community,
itsofficers
have knowlother financialsectors,such as insurance,where
edge about the potentialof local businessesand
firmsdiscriminateagainst those whom they perresidential
areas.It is morecostlyfora lenderlocated
ceive to be bad insurancerisksby sharplyraising
outsideofthecommunity
to developthisinformation.
In an assessment
ofcreditworthiness,
thatlenderwill
premiums or even refusingto offerinsurance
substitute
knowlof
generic,and even impressionistic,
altogether.1This developmentis representative
characteristics
formore
a more explicitformof socio-spatialrisk-pricing edgeaboutoverallcommunity
information.
project-and borrower-specific
(Dymski
within the financial-services
industryl2 and of a
and Veitch 1992, 15-16)
commodification
of
the
between
greater
relationship
financial-services
firmsand theircustomers.
There are now numerous examples of firms
Althoughstillin its early stages in Britain,the
introducing
practiceswhichexcludeand/ordiscrimi- process of financialexclusionhas the potentialto
nate against certain individuals. A particularly inflictserious economic and social damage upon
revealingsourcein thisregardis the 1993 submis- communities abandoned by the process of
sion of theNationalAssociationof CitizensAdvice financial-infrastructure
withdrawal.In the short
Bureaux(NACAB) to the Code of BankingPractice term,it means that individualsand householdsin
have to look outside the formal
Review Committee.Based on evidence compiled such communities
fromCitizensAdvice Bureauxacross the country, 'market-regulated'
financialsystemto satisfytheir
the submissioncontainssome shockingexamplesof financial-services
needs (Fig. 3). In the absence of
the oftenbrutalway in whichbanks and building suitable alternatives,such as the non-marketsocietiesare policingtheboundariesof the financial regulatedservicesprovided by creditunions and
system(Fig. 2). What is clearis thatmanyof those communitydevelopmentbanks (see below), or
financialservices,such as
brought 'inside' the financialsystem during the unregulated,non-market
1980s are findingthemselveson the 'outside'in the familyor friendshipnetworks,then communities
1990s, as they are expelled throughthe simple may become a breedingground for exploitative
device of banks closing theiraccounts,or as they and predatoryunregulated-market
financialservleave 'voluntarily'by closing their accounts to ices (Haas 1992) where annual interestrates of
avoid the punishingchargesincurredwhen over- over 1000 per cent are not unusual(Table I).13 In
draftlimitsare exceeded.
the long term,communitiesabandoned by the
At the same time,many financial-services
firms financialsystemare in danger of enteringa slow
are combiningthissocial distancingwitha physical and painfulperiodof declinedue to an inabilityto
distancing as they concentrate their branch- gain access to fundsnecessaryfor the continuous
reductionprogramme
in lower-income
communities. intensivephase of urbandevelopmentwhich supThis process of financial-infrastructure
withdrawal ports the maintenanceof the built environment
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All use subject to JSTOR Terms and Conditions
320
AndrewLeyshonand Nigel Thrift
The commodificationof bank-customer
relationships
Financial exclusion
A CAB in South Wales reported an unemployed
A CAB [CitizensAdvice Bureau] in North London client who went to open a bank account having
reportedthe case of a clientin multipledebt who has understoodthe bankwould accepthimas a customer.
been repayinghis debt to the bank forthe past three He was refusedan accountand refusedan explanation.
years.He has now been seriouslyill forsix months. (p. 4)
The CAB discussed his situation with the Debt
A CAB in Lancashirereportedthe case of a client
RecoveryOfficerof the bank and explainedthatifhe
with a bank loan. He was made redundantand
was pressuredhe mighthave a strokeand die. The
claimedunsuccessfully
on his creditprotectioninsurDebt Recovery Officersaid that at least then they
ance. The bank closed his currentaccount and the
would get theirmoneythroughprobate.(p. 17)
client only found out when directdebits were ndt
A CAB in South Wales reportedthe case of a client made. (p. 7)
withmultipledebt includinga bank overdraft.
When
A CAB in Hampshirereporteda client living on
he visitedthebankmanageron a previousoccasionto
incomesupportwho owed thebank?1,500. The bank
discusshis financialsituationhe was charged?75. He
transferred
the debt to a debt collectionagency and
cannotaffordto go and see the bank again. (p. 17)
the clienthas been repayingit at ?5 a week withno
A CAB in Cornwall reportedan unemployedclient default.The clienthas now been offereda job and the
whichwas increasedto ?40
who has a ?20 overdraft
employer wishes to pay his wages into a bank
and the account.He was refusedan accountby threebanks,
because of charges.It was clearedimmediately
account closed. The building society wrote to the one of which commented'we are only interestedin
I suggest you contact
clientstatingthat85 pence was stilloutstandingand qualityclientsand unofficially
courtactionand loss of creditworthiness. the buildingsocieties'.(p. 32)
threatening
(p. 22)
A CAB in Hertfordshire
reporteda young disabled
A CAB in South Wales reported a client whose clientwho uses his accountto have his salarypaid into
buildingsocietystopped paymentsof her fivedirect which he then withdrawsfor living expenses. The
debits.She was sentfiveseparatelettersat a chargeof bankare closinghis accountbecause of its limiteduse.
(p. 32)
?20 each. (p. 20)
A CAB in Hertfordshire
reporteda clientwitha ?300
overdraftlimit.When the accountwas overdrawnby
?295 the bank wrote to him to remindhim of the
limit.He was charged?15 forthe letter.(p. 20)
Figure 2. The commodificationof bank-customerrelationshipsand financialexclusion
evidence from the submission to the Code of Banking Practice Review Committee by the National
Association of Citizens Advice Bureaux
ofCitizensAdviceBureaux(1993)
Source:
NationalAssociation
economic forwomenapplyingforcreditto providethename
and providesthe possibilitiesforfurther
of a male guarantorhas only relativelyrecently
growth.14
been rescinded(Mitchell1992). The exclusionary
Although the process of financial-infrastructure
discrimiwithdrawalhas obvious implicationsforclass divi- turn is likely to revive gender-specific
sionsin society,it also has thepotentialto reinforce nation,althoughin thiscase thefinancial
systemwill
betweencertaintypesof womenrather
othertypesof oppressions,suchas thosepredicated discriminate
upon gender and race. Women are likely to be than against women in general. The process of
affected
by the processof finan- financialexclusionis also likelyto have important
disproportionately
thehigherincidence
whichreflect
cial exclusionbecause of the occupationalsegre- racialimplications
gationwhichmeansthattheyare morelikelyto be of povertywithincertainethnicminoritygroups
in poorly paid employment,as well the wider and the possibilitiesforracismwithinan industry
incidenceof poverty amongst women than men which employs a lower than average numberof
workers(Leyshonet al. 1993).
(McDowell 1991, 1992). Moreover,therequirement ethnicminority
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offinancial
exclusion
Geographies
321
Regulated
Market
A.
Regulated marketservices
e.g. banks,insurance
companies,buildingsocieties,
etc.
Non-market C.
Regulated non-market
services e.g. social funds,
creditunions,community
developmentbanks
Unregulated
B.
Unregulated marketservices
e.g. moneylenders,
loan sharking,
pawnbrokers,
etc.
D.
Unregulated non-market
services e.g. family/friendship
networks
Figure 3. Typology of retail financialservices
Table I. Cost of credit to low-income groups,
United Kingdom, late 1980s
States had the effectof introducing
more competition betweenfinancial-services
firms(Dymskiet al.
1993). But,whereasin Britainit took severalyears
Sourceof credit
Annual
Availability
to usherin a wave of moredestructive
competition,
to low-income
percentage
theshockof competition
was farmoreimmediatein
rate
groups
theUS. One reasonforthisis thattheUnitedStates
has a fargreaternumberof financial
institutions
per
Creditunions
Yes
than
Britain.
Financial
capita
regulation
by
inspired
12.68
Bank
theanti-financial
of theNew Deal
capitalsentiments
No
personalloans
19.00
served to confineretailfinancial-services
industries
Buildingsocieties
No
mortgages
to single states (Cerny 1993; Florida 1986). The
12.25
personalloans
prohibitionof interstateactivityprotectedsmaller
19.50
Creditcards
firmsagainsttake-overand acquisitionwhichmeant
Access, Visa
No
that the institutionalfabricof the US financial23.10
store cards
29.80
Financecompanies
servicesindustrybecame highlypolarized.On the
variable
No
personalloans
one hand,it was made up of a core of some very
hirepurchase
largefirms,
manyof whichhad grownto sucha size
n.a.
Yes
Catalogue companies
as to be able to competesuccessfully
in international
Check trading
Yes
expensive
financial
the
barriers
on interstate
markets,
despite
Licensed moneylenders
300
Yes
activity.But,on the otherhand,it was made up of
Unlicensedmoneylenders
Yes
1000 +
a much larger tail of small and medium-sized
financial-services
Source:Adapted fromFord (1991, Table 8)
firms,
manyof whichoperatedin
what were oftenhighlylocalized markets(Florida
1986; Holly 1987).
The re-regulationof financialmarketsin the
United States contained not only a structural
Resisting financial infrastructure
element,allowingfirmsfromdifferent
withdrawal and countering financial
partsof the
financialsystemto competewithone another,but
exclusion I: The United States
also a spatialelementas therestrictions
on interstate
Much of what we know about the implicationsof activitywere graduallyrolled back (MacDonald
financial-infrastructure
withdrawaland theproblems 1992). For these reasonsthe cycle of re-regulation
associatedwithfinancialexclusioncomes fromthe fromboom (as firmscompetedwithone anotherto
United States. As in Britain,the neo-liberalre- grow theirassets) to bust (as the overextensionof
regulationof retailfinancialmarketsin the United creditled to indebtednessand default)occurredin a
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322
AndrewLeyshonandNigelThrift
more compressedperiodof timethanwas the case
resentment
at the changesthathave takenplace.
in Britain.The responseof the US financial-services (ibid.,11)
industryto the crisis serves as a warning for
The restructuring
of the financial-services
induseconomiessuchas Britainwheretheindustry
is only
now workingits way out of its domesticfinancial tryover space, the shiftto 'true-cost'financeand
the operationof financialdynamicshave all played
crisis.
The financial-services
industryin the United theirpartin bringingabout what Davis (1993, 14)
Stateshas alreadyretreated
to a largelymiddle-class has describedas the 'spatial apartheid'of the US
heartland,refocusingupon predominantlywhite, urban system.The flightof financialcapital has
suburban communitiesin the search for fee- followedthe earlierflightof the whitemiddleclass
income and investmentaccounts (Mitchell 1990; to ensurethatthe suburbanfringesof US citiesare
white,in work and comparatively
1993). At the same time,the indus- predominantly
Christopherson
tryhas begun to withdrawfrompoorercommuni- wealthy, while inner-citiesare predominantly
or Latino,economicallyblighted
African-AmericanAfrican-American
ties, abandoningpredominantly
and
broke.
financially
and Latino inner-city
areas.15Haas (1992, 26) has
Therehave been two mainpoliticalresponsesto
of this process in
provided a graphicillustration
theadvanceof theprocessof financial-infrastructure
Los Angeles:
withdrawaland the problemsof financialexclusion
In 1988,whenBankof Americaclosedthelastbank in theUnitedStates.The first
responsehas consisted
branchin theVernon-Central
ofSouth of efforts
neighborhood
to halttheprocessby whichcommunities
service are denuded of formalfinancialinfrastructure.
Central,
theylefta community
The
withno banking
for a three-mileradius . . . The same year... Bank second
been
has
to
counter
financial
excluresponse
inBeverley sion
America
Centre'
Banking
openeda 'Private
throughthe creationof 'alternative'financial
Hillsforcustomers
witha networthof fourmillion
infrastructure.
dollarsand a depositof one million.
Accessto the
centerwas by invitation
onlyand theseprivileged
financial-infrastructure
withdrawal
wereprovidedwitha completerangeof Resisting
customers
it
resist
the
of financialThat
is
to
process
possible
other
real
and
fullbanking,
investment, estate,trust
withdrawalin the UnitedStatesat all
infrastructure
services.
is due largelyto the 1977 CommunityReinvestMeanwhile, customersin abandoned areas have ment Act (CRA). This particularpiece of federal
debateover
been disproportionately
disadvantagedby the way regulationwas passed aftera protracted
firmshave increasingly socialjusticeand thefutureof America'sinner-cities
in which financial-services
priced theirservices to reflectthe true costs of duringthe early1970s, as race riotswere followed
and economicdecay.16The CRA was
providingservicesin a more competitivemarket- by divestment
place. Whereas low-income customers had an explicitrecognitionby the US Congress that
financialabandonmentdamages local communities.
previously
Its purposewas
from
ofnon-price
variousforms
benefited
competition,
financial
regulated
to encourage
institutions
[federally]
suchas freeor low-feecheckingand low or nonandaffirmative
theircontinuing
to fulfil
obligation
to
balancerequirements
minimum
existent
meetthecreditneedsof theircommunities,
including
low-andmoderate-income
neighborhoods,
consistent
theynow
withsafeand soundoperationof suchinstitutions.
have to pay forbankingservicestheyuse,or tie-up
balances.
theirsavingsin- forthem- highminimum
(Mitchell1990, 10-11)
In consequence,whereas
fromthe
moreaffluent
customers
mayhavebenefited
rateson depositsand balances,reinhigherinterest
ofhowtogetthebestvalue
forced
bytheir
knowledge
of
are leftwithfeelings
formoney,theless well-off
(Federal Register1978, 47 144)
In some states,the CRA is supplemented
by statelevel community-reinvestment
legislation which
covers those smaller financialinstitutionsthat
are state- and not federallychartered(Mitchell
1990).
The CRA significantly
empowerslocal communities in theirfightto retaintheirformalfinancial
The performanceof the CRA is
infrastructure.
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offinancial
exclusion
Geographies
323
institutions
withtheopportunity
to engage
regularlymonitoredand can be takeninto account financial
shoulda bankproposeclosingbranchesin particular in protractedlegal argumentover the meaningof
areasor a mergerwithan out-of-state
bank.Thishas community
in each particularcase.8
forcedmanybanksto enterinto a formof 'negotiA thirdand finalproblemis that,whilethe CRA
ated restructuring'
to ensurethattheirplansdo not is certainly
a boon to community
groupsseekingto
The CRA has arrestthe process of financial-infrastructure
adverselyeffect'theircommunities'.
withensuredthatmanylocal communities
have clungon drawal,all the Act reallyrequiresis thatbanksand
to a level of financial-service
discloseinformation
on theirlendingactivity.
provisionthat they thrifts
would otherwisehave lost (see Bond (1991); and As Mitchell(1992, 12) observes,the CRA
Mitchell(1990) forexamples).It has been estimated
on banksto
that the use of the CRA to resist financial- does not put any formalrequirements
makecertainkindsof loans,or to extendcreditto
infrastructure
withdrawaland financialexclusion
thedetailsof
particular
groups... [but]. . . bybringing
succeeded in winning more than $5 billion in
banks'creditdecisions
intothepublicdomain,
so that
lendingconcessionsforlow-incomeareasduringthe
as well as to
theyare subjectto publicscrutiny
1980s (Bond 1991). But, given the advance of
itprovides
a powerful
incenbyregulators,
monitoring
financialexclusionin the UnitedStates duringthis
tiveto banksto takeaccountoftheneedsofsections
ofthecommunity
whichotherwise
period,theCRA is clearlyanythingbuta watertight
be neglected.
might
barrieragainsta growingtide of financialabandonment (Fishbein1989). There would appear to be However, there is evidence that the 'monitoring
threemainproblemswiththe CRA in thisregard. by regulators'referred
to above is not as attentive
First,the CRA focusesonly upon credit-grantingto detail as perhapsit should be. As Haas (1992)
institutions
(i.e. banks,and savingsand loans insti- pointsout,banksin Los Angeles whichhave come
tutions)and not upon other financialinstitutions, undersuspicionon the basis of an examinationof
such as insurancecompanies (Hoyt and Choca theirpatternof lendingbehaviourhave, neverthe1989). This has meantthat,while many communi- less, been able to achieve 'outstanding'community
ties retain a link to credit-granting
institutions reinvestment
ratings.
thanksto the CRA, theymay be denied access to
In recentyears the provisionsof the CRA have
insuranceby an industry
which'sincethemid-1960s been strengthened
in the 1989 FinancialInstitutions
... [has] concluded that urban communitiesare Reform,Recovery and Enforcement
Act (FIRRE).
uninsurable'(Squires and Velez 1988, 64). Thus, FIRRE was enactedin the crisiscaused by the near
over a long period of time,insurancecompanies collapse of the savings and loan industryundera
have withdrawntheirofficesfromthe poorerparts mountainof debt followingderegulationin the
of US cities (Squires et al. 1991). An inabilityto early 1980s (MacDonald 1992). The scale of the
obtain insurancewill, in all probability,affectthe losses runup by thesavingsand loans industry,
and
chanceof an individualobtainingcrediteven from the mannerin which they were incurred,often
an institution
bound by the CRA since it does not involving acts of corruptionand fraud,caused
act counterto 'safeand widespreadpublicoutragein theUnitedStates.The
requirethatbanksand thrifts
sound' prudentialstandards.Althoughit is illegal extraprovisionsforthe CRA in the FIRRE Act for insurancecompanies explicitlyto define'red- which widened the scope of institutions
covered
line'areas withinwhichtheywillnot writepolicies, and requiredthedisclosureof moredetailedlending
theyare now adept at pricingpoliciesin ways that information
- may be seen as makingthe financialsubtly exclude the areas in which the poor and servicesindustry
do penancefortheexcessesof the
minoritygroups live, with clear implicationsfor 1980s. However, as MacDonald (ibid.)has noted,
economicdevelopmentin such areas.17
thedownturnof theUS economyin theearly1990s
A second problemis that,likeany otherformof began to shiftattentionaway fromthe interestsof
legislation,thereare any numberof possible read- local communities
towardsthedemandsofcapitalas
ings of the CRA, so that the preciseremitof the the financial-services
industrybegan to lobby for
Act is open to interpretation
(cf.Clark1989b). The the relaxationof the reformof the CRA.
main interpretivebattlegroundhas been over
theCRA remainsa critically
Nevertheless,
importthe definitionof 'creditneeds' and 'community'. ant weapon in the armouryof those who seek to
The lattertermhas been particularly
contentious defendlocal communities
againstthe economicand
and has provided the legal representativesof social ravagesof financial-infrastructure
withdrawal.
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324
AndrewLeyshonandNigelThrift
It is complementedby a second, more proactive
strategywhich seeks to counter the problems
caused by the process of financialexclusion and
which involves building an 'alternative'financial
infrastructure.
therightsortof local institutions
are in place to tap
and realize them (see, for example, Gaston and
Kennedy1987).
These local institutionscan also provide an
alternativeto the neo-liberalprescriptions
of the
NUP. As such, they constitutewhat Christopher
- building
exclusion
an
and Hazel Gunn (1991) have describedas alternafinancial
Countering
alternative
of accumulation(AIA), which can
tive institutions
financial
infrastructure
In an otherwisepessimisticreview of more thana contributeto local economic developmentin a
decade of urban policies informedby the neo- numberof ways. For example,AIA can
liberalismof the Reagan and Bush administration, attract
to thecommunity
resources
andrecycle
themthere;
Deborah Auger (1993) alights upon Community respondto the community
becausetheirgoverning
bodies
a majority
of local citizensand makeuse of
incorporate
DevelopmentCorporations(CDCs) as offering
perdemocratic
decision-making
processes;
haps the only glimmerof hope forthose inner-city
anduse socialsurplus
inwaysthatencourage
local
aggregate
communities
close to collapse underthe weightof
(ibid.,
60)
development.
capitalflight,grindingpoverty,spirallinglevels of
crimeand an atmosphereof violence and danger.
What distinguishes
AIA fromtheland and propAuger (ibid.,812) gives CDCs a glowingtestimony ertydevelopmentagencies favouredby adherents
for operating in 'the most severely distressed of the NUP, is that they operate on behalf of
urban neighborhoods,felt to have been largely local communities
ratherthan on behalfof capital.
"abandoned" by governmentand business alike', Whereas large-scale property development freand formobilizingfundsfroma range and public quentlyoperatesaround a rubricof displacement,
and private sources to attend to 'physical and withthe implicitaim of bringingin a moreaffluent
economicdevelopmentneeds'.
residentialbase via gentrification,
AIA focusupon
CDCs and similarbodies are informedby the improvingthe circumstances
of the existingresi'localism' which increasinglycharacterizesurban dents(Taub 1988). In thissenseAIA maybe seen as
governanceon both sides of theAtlantic(Lovering institutions
ratherthanof compliance:
ofresistance
1994; Peck and Tickell 1993). In essence, this
in termsof
Alternative
can ... be defined
institutions
neo-liberal'new urbanpolitics'(NUP) (Cox 1993)
social
objectives
Many
their
change.
with
respect
to
revolves around the premisethat,while capital is
are
services
are
organized
simply
provide
to
that
'communities'
are
mobile,
by
potentiallyglobally
lackingin a community;
theirgoal is to survivefrom
theirvery naturerooted in particularplaces. For
yearto yearin orderto do theirwork.Othersare
adherentsofNUP thismeansthaturbangovernance
intended
incharacto be,or theybecome,oppositional
must be about makingurban arenas fitplaces for
on thepremise
ter.Theyshapethemselves
thatthey
capital to do businessand about competingwith
institutions;
mustbe morethanameliorative
theywork
otherurbanarenasto attractand retainhypermobile
ofthe
to changethebalanceofpoweranddistribution
flowsof capital.
of lifein theircommunities.
fruits
(Gunnand Gunn
1991,60-1, emphasis
added)
However, thereare stronggroundsforarguing
thatsuchgenuflection
in thefaceof capitalis driven
Credit unions and communitydevelopment
as much by ideology as it is by therebeing 'no
Cox (1993) arguesthatrecentchanges banksare thetwo mostimportant
examplesof AIA
alternative'.
in the nature of industrialproduction,revolving thathave emergedin theUnitedStatesto servethe
around the fragmentation
of verticallyintegrated financialneeds of those urban communitiesmost
withproductionand the developmentof geographically adverselyeffectedby financial-infrastructure
These
institutions
and
drawal
financial
exclusion.
means
that
concentrated
filieres,
capital
production
is becoming more rather than less locationally mobilizelocal pools of savings,sometimestopping
embedded(see, forexample,Aminand Thrift1992; them up with private,public and philanthropic
Storper1992). On the other hand, to argue that funds,and therebyprovidea source of creditthat
regimesof urbangovernancehave to be bentto suit would not otherwisebe available.
Credit unions are cooperative societies which
the demandsof mobilecapitalignoresthe factthat
within every urban system there are financial offermembers loans out of a pool of saving
resourceswhichcan be drawnupon and utilizedif accumulatedby the membersthemselvesand are
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offinancial
exclusion
Geographies
325
the most widespread form of AIA. By the late activities ranging from property rehabilitation
1980s,therewereestimatedto be morethan16 000 to the initiationand managementof social and
creditunionsin the US, witha combinedmember- economic development projects, the Shorebank
Corporationhas played a leadingrole in
ship of 54 million(Berthoudand Hinton1989).
Communitydevelopment banks are typically
theeconomyoftheSouthShoreneighborstabilising
createdto fillthe investment
institutions
non-profit
thequalityof housing,
hood,dramatically
improving
perceivedto be poorlyserved
gap in communities
and instilling
a more
new businessactivity,
fostering
by the formalfinancialsystem (Gunn and Gunn
by bothresidents
positiveviewof theneighborhood
1991).19One of the most successfuland certainly
andJabbar-Bey
andoutsiders.
1993,5)
(Barnekov
the most documentedof the communitydevelopment banks has been the ShorebankCorporation But,in addition,the bank was also makingrecord
earninga pre-taxincomeof over $2 million
(Barnekovand Jabbar-Bey1993; Taub 1988). This profits,
bank holdingcompanyis a private-sector
organiz- in 1992 froman asset base of almost$250 million
ation but is able to combineprofitand non-profit (Cowe 1993).
The success of the ShorebankCorporationand
activitiesin a way not open to more conventional
since it enjoys an unusually similar organizations20lies behind the Clinton
financialinstitutions,
shareholderbase. The administration's1993 CommunityDevelopment
patientand communitarian
Act, which proposes to
main stake-holdersin the bank are foundations, and FinancialInstitutions
make
more
than
million
available between
$380
individuals'
and
religiousgroups,many
'concerned
of thembased in the South Shore area of Chicago 1994 and 1997 to supporta wide range of com(CDFIs).
where the bank operates.The unusual ownership munitydevelopmentfinancialinstitutions
structureof the bank results from an effortto The CDFIs include not only communitycredit
counteran early example of attemptedfinancial- unions and communitydevelopmentbanks but
infrastructure
withdrawalwhen, in 1972, the bank also communitydevelopmentloan funds,microfundsand minority-owned
creditinstitusought to relocate fromSouth Shore to a more enterprise
and
tions
The success
(Barnekov
1993).
Jabbar-Bey
in
The
location
the
centre
of
Chicago.
prestigious
reasons for this relocation were related to the of thisparticular
piece of legislationwould lead to a
increasein the numberof CDFIs, doing
demographic,economic and racial transformationssignificant
to
much
offset
the problemscaused by financialwhichthearea had undergoneduringthe 1960s and
infrastructure
withdrawal
and financialexclusionin
The
1970s.
of
African-Americans
early
proportion
areas in the UnitedStates.21
in the area increased sharply so that by the manyinner-city
mid-1970s over 85 per cent of the population
was black. This, in turn,was accompaniedby a
Resisting financialinfrastructure
sharp decline in average incomes in the area. withdrawaland
counteringfinancial
Accordingto Taub (1988, 41), the owners of the exclusion II: Britain
bank were
The situationin Britainis different
to that in the
certainthatit couldnot survivetheperiodof racial
United
in
States
a
of
number
respects. Most
change[and]petitionedto move the licenseto a
the
of
financial-infrastructure
importantly,
processes
downtown
locationon thegrounds
thatSouthShore's
withdrawaland financialexclusion are much less
newresidents
wouldbe unableto support
a bank.
advanced (Leyshonand Thrift1993). However, as
However, the bank's attempted'flightto quality' we saw earlier,thereis strongevidenceto suggest
was successfullyresistedand communityactivists that both processes are gathering momentum.
took over the bank in 1973 to more effectively Between 1982 and 1992, 17 per cent of bank
countertheproblemsfacinga community
subjected branchesin Britainwere closed (Annualabstractof
to more subtleexamplesof financialexclusion.
bankingstatistics1993). In the late 1990s, aftera
of the formerownersof period in whichbuildingsocietybranchnetworks
Despite the reservations
the bank, the ShorebankCorporationhas proved were expanded, building society branches also
that it is possible to run a successfulfinancial began to be closed in considerablenumbers.The
institutionin areas abandoned by more formal effects
of theseclosureshave clearlyhad differential
financialinfrastructure.
Now consistingof several spatial effects.For example, one study (Skuse
subsidiary companies, which are engaged in 1993) of Midland Bank and BarclaysBank branch
This content downloaded from 194.128.227.202 on Fri, 9 Jan 2015 05:54:22 AM
All use subject to JSTOR Terms and Conditions
326
AndrewLeyshonandNigelThrift
0
*
**
0
*0?
.
*
*
0
0
0?
*
*
0
0
0
.*
-
**
0
*
110
.
.
.
?
0
*
..
20
40
60
Numberof branches
80
100
Figure 4. Barclays and Midland Bank: full-branchclosures, 1988-93
Source:Skuse (1993)
closuresbetween 1988 and 1993 found that full
branchclosureswere concentratedin major urban
areas (and especially in London, Brightonand
closureswere more
Manchester),whilstsub-branch
and
included
evenly spread
manyclosuresin rural
areas (see Figs 4 and 5). To compensateforthese
closurestherewere also a smallnumberof branch
openings which were nearly all in new office
and shopping developments(Fig. 6). The exact
locational effectsof these closures awaits further
study. Preliminaryresearch in Hull and Bristol
between,
suggeststhatthereis no easy correlation
This content downloaded from 194.128.227.202 on Fri, 9 Jan 2015 05:54:22 AM
All use subject to JSTOR Terms and Conditions
Geographiesof financialexclusion
327
0
0
0
0
*.
0
*00
0
0'
*
0
.
.
*
0~~
.
0'
@0
0...00
@
*
0
@0
0
00
@0
*
.0.1
*
o
0
00
@0
1
.
10
0
.
*.**
'~@.
@0 0
09
. 000.
20
00
.0
0
.
.
,
0
0
0.
*
0*
09
0
*
0
.
'
0.*
*
00
0
600 4
20
40
Nube ofbace
0
60
80
10
Figure 5. Barclays and Midland Bank: sub-branchclosures, 1988-93
Source:Skuse (1993)
forexample,poorerareas and branchbankclosures
butresearchin largercitieshas foundsuchevidence.
For example,the findingsof a surveyin Aston in
1991 was that
TheTrustees
SavingsBank... is nowleavingtheward
The TSB (WittonLane) closed on 10
completely.
December and TSB (Newtown Shopping Centre)will
close in April 1991. Thereare only foursmallbuilding
societybranchesleftin Aston and all of these are on
Witton Lane in the far north end of the ward. In
November 1988, therewere 13 major clearingbank
branchesin the ward. From August 1991, when the
Midland closes its Wittonbranch,therewill be only
This content downloaded from 194.128.227.202 on Fri, 9 Jan 2015 05:54:22 AM
All use subject to JSTOR Terms and Conditions
328
AndrewLeyshon
andNigelThrift
0
U
Vr
A
Bank
?Mdland
*Barclays
Bank
Figure 6. Barclays and Midland Bank: branch openings, 1988-93
Source:Skuse (1993)
fiveleftandfourofthesearein theJewellery
Quarter neighbourhood,
one of thebranchesin theJewellery
area close to the citycentre- well away fromthe Quarterhas closed and a second is threatened
with
areasof theward. closure(ibid.).
and residential
shoppingprecincts
(citedin Kempson 1994, 8)
The evidenceof financialexclusionis more proSince 1991, the situationin Aston has deteriorated. nounced.We alreadyknow thata significant
proThereis onlyone buildingsocietybranchleftin the portionof the Britishpopulationexist outside the
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Geographiesof financialexclusion
329
Table II. The financially excluded: (1) adults
withouta current(cheque book) account, United
Kingdom, mid-1980s
Table III. The financiallyexcluded: (2) social
groups with the lowest penetration of current
accounts, United Kingdom, 1991
Percentage
ofadults
withouta current
account
Adults
Adult females
Adult males
31.2
34.6
27.4
By socialclass
E
D
C2
CI
AB
By income(L perannum)
Not stated
2999 or less
3000 to 4999
5000 to 6999
7000 to 8999
9000 to 10 999
11 000 to 14 999
15 000 and over
Percentage
of households
withouta current
account
Age and familycircumstances
Aged over 70
Lone parent
Separatedor divorced in last 3 years
5837
43.7
3038
1832
1138
Workand employment
status
Full-timehousewifeand mother
59.0
51.3
3438
25.1
1835
1438
11.0
Income
11.3
Source:Adapted fromFord (1991, Table 9)
financialsystem.One survey (Euromonitor1993)
estimatedthat81 per cent of adultsin the UK had
a bank account in 1991. However, these accounts
did not automatically
come witha chequebook or a
card.Thus,whereas70 percentof
cheque-guarantee
adultshad a cheque book, only 60 per cent had a
cash card and 58 per centa cheque-guarantee
card.
Again, while 64 per cent of adults had a building
society account,only 13 per cent had an account
witha chequebook. Othersurveys(e.g. Ford 1991)
show thatthe distribution
of accountownershipis
heavily skewed towardsparticularsocio-economic
groups and is more likelyto exclude women and
certainethnicgroups(Table II). Household surveys,
whichmay be moreaccuratereflections
of financial
exclusion, since in many households only one
account is held jointly,show that 19 per cent of
households in the UK did not have a current
account in 1991. Households without current
accountstendedto be pensioners,
or non-pensioners
withan incomeof less than?150 per week (Table
III).
These figuressuggest that financialexclusion
does not stem so muchfromthe lack of a current
accountwhich,accordingto Kempson (1994), few
Unemployed
Disabled
Retired
Part-timework
Unskilledwork
30
52
30
63
52
40
28
26
37
Non-pensionerwith
income below ?100 a week
Weekly budget
No savings
Claims housing benefit
Claims income support
Claims unemploymentbenefit
Claims retirement
pension
28
38
60
58
54
28
Housingand neighbourhood
Council tenant(UK)
NIHE tenant
Housing associationtenant
Privatetenant
Lives in run-downarea
Lives in very run-downarea
Pensionersin ruralareas
47
73
27
29
39
55
33
Scotland
NorthernIreland
29
31
49
Source:Kempson (1994, 6)
individualsor householdsare refused,thanfromthe
availabilityof additional facilitieslike a chequeguaranteecardor a Switchcardwhichare provided
only to thoseapprovedby bankor buildingsociety
systems:
credit-scoring
A verysimplecurrent
witha cashcardand
account,
orderor directdebitfacilities
is potentially
standing
availableunless[anapplicant]
cannotbe identified
on
thevoter'sregister
or theapplicant's
creditreference
containsadverseinformation
suchas a countycourt
judgementor othercreditdefault.Screeningfora
morestringent.
chequebook wouldbe onlyslightly
Butthecreditscoring
fora chequeguarantee
cardora
Switchcardis likely
tobe nearly
as toughas itis foran
overdraft
or loan, since both facilities
providean
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330
AndrewLeyshonand Nigel Thrift
to overdraw.
opportunity
Peoplewho do nothavea
a localauthority
orhousing
job,renttheirhomesfrom
or have any indication
of instability
in
association,
theirlives (job loss, relationship
recent
breakdown,
housesmoves)wouldall havea reducedlikelihood
of
cardor a Switch
gettingeithera chequeguarantee
card.(Kempson1994,9)
special immunityfromfailurethat they enjoy by
being granteda bankinglicence.
This lineofargument
begs a numberofimportant
questions.It is not entirelyclear what Mitchellis
to whenhe uses theterm'community'.
As
referring
we saw earlier,thisis a highlycontentiousconcept,
and meanopen to a wide rangeof interpretations
Taken together,the body of work referredto ings. Presumably,in thiscontextMitchellis referabove would suggest that there is a clear link ring to a nationalcommunity,since UK banking
betweenincome,social class,gender,ethnicityand licences confernationwiderights,whereas in the
financialexclusion in Britainwhich is currently United States licences are much more localized,
a communityto which
becomingmorepronounced.
makingit easier to identify
Given the potential of these processes of the bank should be responsible.Mitchellseems to
financial-infrastruture
withdrawal and financial be suggestingthat in returnfor operatingin the
a relatively British financialsystem, banks should not be
exclusionfinanciallyto disenfranchise
large proportionof the Britishpopulation,what allowed to refuseservicesto anyone withinthat
likelihoodis thereof theseprocessesbeing resisted nationalregulatory
whether
space. Butto determine
and counteractedduringthe 1990s?
or not a bankwas respondingto thecreditneeds of
the 'whole community'in this case would require
in
withdrawal
disclosure
banksto agree to a level of information
Resisting
financial
infrastructure
Britain
in Britain.Given the
whichwould be unprecedented
industry
There is no legislationapproachingthe CRA in innateoppositionof the financial-services
Britain,nor,in truth,does thereseem muchchance to any legislationthatwould requiresuchdisclosure
(and in all
of thecurrent
Thereis no and theapparentdisinterest
of any,at leastin theforeseeablefuture.
for
in
likelihood
future)
any
calling
government
the
financialstate
and
the
British
between
dispute
services industrythat the primaryduty of the disclosure,it would seem that financialexclusion
industryis to please its shareholdersfirstand its will have to get a lot worse before regulatory
clients second. Indeed, as Hunter (1993) has change can improve it. Financial regulation is
usuallyonly enactedin responseto crisis(Leyshon
observed,
1992; Moran 1991); we must expect the crisisof
A financialexclusionto get a lot worse beforeany
forclosingbranches.
[t]hebanksare unapologetic
Information
fortheBanking
Servicesaid: effort
spokesman
is made to tacklethe problemvia regulatory
We do notprovide
notcharities.
'Banksarebusinesses
along the linesof the CRA.
change
socialservices'.
Clearly, one of the main problems with
But thisdenialof a widersocial responsibility
by argumentssuch as Mitchell'sis the fact that the
has been challengedon at least Britishfinancial-services
industryis dominatedby
thebankingindustry
two counts.The firstchallengehas been posed by a relativelysmall numberof large and powerful
those who argue that banks should be socially institutionswho have little or no incentiveto
responsiblepreciselybecause theyare not likeother pay attention to argumentsabout community
A second challengeto the financialbusinesses.Accordingto Mitchell(1992), banks in responsibility.
for
to fail. servicesindustry'sdisavowal of responsibility
Britainare seen as too big and too important
The collapse of a majorbank would so destabilize the social problemscaused by financialexclusion
be to campaignforthe dismantling
theBritisheconomythatit would not be allowedto may,therefore,
happen22- or at least not withoutpublic inter- of the industry on competition grounds. A
to the experienceof all break-upof an oligopolisticindustryinto smaller,
vention.This is different
other forms of capitalist enterprisewhich are more competitivegroups,perhapsorganizedon a
allowed to fail.Mitchelltakes his inspirationfrom regionalbasis, would certainlyweaken the power
the CRA to argue that in futurebanks should be of the industryand, to the extentthat it would
forcedto provideservicesto anyone in the 'whole force firmsto embed themselvesin local and
community'who requires them. A concern for regional economies,mightwell countersome of
communitydevelopment should be seen as an the worst excesses of financialabandonmentand
obligationwhich is conferredupon banks by the exclusion.
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offinancial
exclusion
Geographies
An argumentalong theselines comingfromthe
leftwould not raisetoo manyeyebrows.However,
just this argumenthas been made froma critic
on the rightof the politicaldivide.In
placed firmly
a recentmonograph,Alan Duncan (1993, 40) electedas the ConservativeMemberof Parliament
forthe Rutlandand Melton constituency
in 1992 makesa strongcase forregulationwhichwould,as
he puts it, 'unbundlethe banks'.Duncan's motivation forlaunchinga broadsideagainstthe banksin
thisway is not hardto fathom.He places muchof
the blame for the boom and bust of Britain's
economyduringthe 1980s and 1990s at thedoor of
thelargeclearingbankswhichis perhapsdisingenuous given his political affiliation.
Moreover, his
attackupon the banksis inspiredin largepartby a
neo-liberalism
which believes that large economic
institutionsdistort what would otherwise be a
and equilibrating
systemof economic
self-stabilizing
But thesecaveats aside,Duncan's concompetition.
tributionis an interesting
additionto those voices
who would arguefora reformed,
more responsible,
more locallyorientatedfinancialsystem.
Duncan's argumentrunsas follows.The British
clearingbanks'are simplytoo large and diversified
... to discriminatebetween sound and unsound
bankingpropositions'(ibid.,35); theyare outdated
economicinstitutions,
legacies of an earlierage of
capitalismthat was nationalin its orientationbut
whichhave been wrong-footed
by theglobalization
of economic activity, particularlywithin the
financialsphere:
theentireraisond'@treof theold-style
bank
clearing
has disappeared.
in thelatenineTheywereformed
centuries
becauseit was
teenthand earlytwentieth
believedthatbanksneededtobe bigenoughto service
thelateindustrial
whichwerethenbeing
corporations
formedthrougha seriesof mergers.
Today, those
borrownotfromthebanksbutfromthe
corporations
Itwasforthatreasonthat
capitalmarkets.
international
the modernclearerswere divertedinto lendingto
commercial
andintovarioustypes
property
developers
ofdubiousfinancing
usedtomount
takeover
leveraged
bidsfortheirformer
clients.
(ibid.,36-7; cf.Lashand
Urry1987;LeyshonandThrift
1993)
Duncan's worryis thatin the 1990s banks will
restrictcreditin the same indiscriminate
manner
thattheydispensedit' (ibid.,37). His prescription
is
for the banks to returnto theirroots in the local
banking marketsfrom which they emerged in
the nineteenthcentury.He argues that when the
331
bankingindustrywas made up of a constellationof
independentbankingpartnerships
theywere 'closer'
to theirclients,
oftenencountering
themsociallyas wellas inbusiness,
and knewthosewhomtheycould trustand those
whomtheycouldnot.(ibid.,
36)
Duncan's primaryconcern is with small and
medium-sizedenterpriseswhich,he argues, have
sufferedover a long period of time because the
banks have been more concernedwith the credit
needs of largeand morenationallyorientatedbusinesses.It is thiswhichmotivatesDuncan to call for
the 'unbundling'of the highly concentratedand
centralizedbankingindustrybecause if
the modem clearingbankswere brokenup into
or evenlocal,suppliers
of creditakinto the
regional,
smallpartnership
banksfrom
whichmostofthemwere
formed,
oftheir
theywouldgeta better
understanding
borrowers.
(ibid.,
36)
This interpretation
runsalong similarlinesto those
argumentswhichinsistthata more locallyembedded financialsystemwould add to the institutional
richnessof regionaleconomies,whichcould ensure
theircontinuedviabilityand competitiveness
on a
global scale (Murray 1991; cf. Amin and Thrift
1992). But it may well be thata processof unbundling would also help to resist the process of
financial-infrastructure
withdrawal,as banks would
be forcedto lower theirsights,refocusupon more
local marketsand cultivateareas theycould otherwise affordto overlook as nationallyorientated
organizations.
Duncan even suggeststhatit is 'conceivable'that
theOfficeof FairTradingcould preparea legal case
against the banks on competitiongroundswhich
could force the de-concentration
of the industry.
There is, he argues,'strongprimafacieevidenceof
an informal[banking]cartel' (Duncan 1993, 36),
manifested
in the way thatall the bankswere able
to increasechargesand widen marginsduringthe
deep recessionof the early 1990s and by the fact
that the marketfor creditis controlledby just a
handfulof suppliers.
This is an interestingargument.However, it
needs to be treatedwithdue caution.The argument
advanced by Duncan may be seen as a variantof
the well-rehearsednew-righteconomic discourse
whichcharacterizes
industriesas
large,bureaucratic
'inefficient'
and 'bad', and small and medium-sized
businessas 'lean', 'efficient'
and, therefore,
'good'.
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332
AndrewLeyshonandNigelThrift
This despitethe factthatBritainwas
Having seen this discourse used to justifyfirst infrastructure.
and thenselling-off
the nationalized the birthplaceof the cooperativemovementwhich
running-down
industries,Duncan could be accused of merely did muchto inspirethelaterdevelopmentof several
looking for a new set of 'enemieswithin'in the formsof cooperativefinancialinstitution(Tucker
shape of what perhapscould be describedas the 1967). Althoughthe Co-operativeBank owes its
nearestthingto a nationalizedindustrythatexists originsto the efforts
of the Rochdale Pioneersof
in the privatesector.
1844, and the TrusteesSavings Bank (TSB) is a
Moreover,thereare a numberof problemswith prominentsurvivorof the numeroussavingsbanks
Britainto
Duncan's argumentin certainplaces. First,as the which grew up in nineteenth-century
example of the United States makes abundantly mobilizelocal and regionalpools of savings,both
clear,a morefragmented,
locallyintegrated
banking institutionsare now firmlypart of the formal
ensurethatcreditwill financialinfrastructure
sectordoes not automatically
of Britain,competingwith
for national and interbe more accessiblethanit is in a more centralized other financialinstitutions
banking system.Secondly,Duncan's call for the national funds.At the same time, Britain'ssole
into
break-upthe bankingsystem at a national level state-ownedbank was recentlytransferred
in
&
the
Alliance
when
1990
at
a
transnational
level
the
the
fact
that
hands,
private
ignores
bankingsectoris becomingever more centralized LeicesterBuildingSociety bought the Girobank,
and concentrated,
tendencieswhichwithinEurope previouslya divisionof the Post Office(Leyshon
have been considerablyhastenedby the creationof and Thrift1994).
of accumuThe paucityof alternative
institutions
a SingleEuropeanMarketformanyfinancialproducts(Begg 1992; Leyshonand Thrift1992). Thirdly, lationis not helped by the factthatcreditunions,
and finally,
the creationof a set of smallerfinancial the most numerousform of AIA in the world,
institutionsmust be set in the context of wider have forthe most partfailedto gain a footholdin
of Britain.In 1986, only 35 000 people, or
concernsfor the systemicfragility
international
per
0.1 of a
the financialsector (Davis 1992; Underhill1991), cent of the Britishpopulation,were members
concernswhich,for the most part,associate size creditunion (Fig. 7). This comparesto a figureof
withfinancial
(It is doublyironic,therefore, aroundone in fivepeople in the UnitedStatesand
stability.
which around one in four in Canada (Berthoud and
that the independentbankingpartnerships
Duncan lamentsactuallybegan to disappearfrom Hinton 1989). The main advantages of credittheearlynineteenth
centuryonwards,whenin 1826 union membershipis thatit can provide creditto
the Bank of England allowed joint-stockbanks to people who would not normallybe considered
formoutsidethe 65-mile'exclusionzone' surround- credit-worthy
by more formalfinancialinstitutions
ing the City of London as part of an effortto and can providecreditat a cost thatis well below
and stabilizea provincialfinancial
system the marketrate. For example,compoundrates of
strengthen
made volatile by the regularcollapse of poorly intereston credit-unionloans are usually in the
(Black region of 12 per cent per annum,whereas the
capitalizedindependentbankingpartnerships
1989).)
comparablerates for personal loans, creditcards
which and chargecards are anythingfrom20 to 35 per
These are powerfulcounter-tendencies
make the break-upof the Britishbankingindustry, cent per annum or more. This means that credit
valuablesourcesof creditto
along the lines that Duncan suggests,extremely unionsare particularly
problematic.It would appear that,while thereare those individualsand familieson low incomesfor
certainlypossibilitiesfor resistingthe withdrawal whom the need to replacean everydayitem such
in Britain,the as a washingmachinecan lead to a severe houseof formal financialinfrastructure
loan of a few
chances of success, at least for the foreseeable hold financialcrisis.A credit-union
memare likelyto be slim.Withthisin mind,letus hundredpounds ensuresthata credit-union
future,
consider the possibilitiesof a second strand of ber is able to purchasethe goods requiredwith
exclusionthroughan cash and at far less cost than would be the case
financial
resistance:countering
alternativefinancialinfrastructure.
when using other forms of credit,whereas an
applicationfor creditfromthe retaileror a bank
exclusion
in Britain
mightwell have been denied.
financial
Countering
in Britain
In recentyears,severallocal authorities
Compared to the situationin the United States,
Britainis poorly served by alternativefinancial have soughtto promotecreditunionsforthisvery
This content downloaded from 194.128.227.202 on Fri, 9 Jan 2015 05:54:22 AM
All use subject to JSTOR Terms and Conditions
exclusion
offinancial
Geographies
333
6330
number
Total
of
members
=
Black segment equals
= average size of unions
as percent of total
SSTANDARD
0
0
S
o
SEM
6330
,
_
REGIONS
S
Scotland
N
North
NW NorthWest
Y&H Yorkshire& Humberside
WM West Midlands
East Midlands
EA East Anglia
W Wales
SW South West
SE South East
NI Northern Ireland
N
430
Y& H
NW
t
1170
2960
122 860
SW
NO UNIONS
1
8640
450
0
150
km
Figure 7. Credit unions and membershipin the United Kingdom, by region, 1986
Source:Berthoudand Hinton (1989, Table
1.6)
reasonas well as to countertheproblemsassociated
with the use of non-regulatedmarketedfinancial
services,the growth of which is blightingmany
public-sectorhousing estates in Britain(Fig. 8).
thereis evidenceto suggestthatthe
Encouragingly,
use of creditunionswillincreaseiftheyare actively
promotedby concernedbodies.For example,29 per
cent of the catholicpopulationof NorthernIreland
and 30 per centof thepopulationof theRepublicof
Ireland are membersof creditunions. Indeed, in
1986 therewere 3-5 timesmorecreditunionmembers in NorthernIreland than there were in the
This content downloaded from 194.128.227.202 on Fri, 9 Jan 2015 05:54:22 AM
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334
AndrewLeyshonand Nigel Thrift
Aiccess
or
EARLHJ
\CREDITI4T h
UNION
Reliable
Loans
Ii
zgtPING
Help
Management
with
0
your
money
CREDIT UNION LTD
EARLHAM
CREDIT
EARLHAM
UNION
UNION
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oan
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a
Earlham Credit Union is a financialco-operative which
provides a convenientsavings and low cost loan service
forpeople who live in Earlham.
It costs ?1 to join and this means you are a shareholder
and can help to run your Credit Union. For information
on saving call in at -
Aftersaving on a regular basis for 13 weeks you can
borrow up to twice your savings (see loan policy for
furtherdetails).
Loke CommunityCentre:
Tuesdays
Meadowview
CommunityCentre :
Wednesdays 9.30-10.30am
Cadge Road
CommunityCentre :
Thursdays
Interest is set by Law at 1% a month (12.68APR).
For every ?100 borrowed and paid back in a year the
total interestis ?6.50.
helping
hand
when
you
need
&
6.30- 7.30pm
9.30 - 11.30am
Myhushand and Ihavesavvdformanyyemwith
ourCredit
~n and have bei~eflte4gweatJy.
We
bogibado~wown accounts. Whci~iuy Jwsbanddiv4
~wIng~3OO the loRnw#ts
pAIdforbytheCredit
UnionInswu*~ce. Ui~ savingsof~175 weredoi~bIcd
aiidgiven
me IWtheCredit Union.
Iwtis receinlymade reduodant. lboiight
my~e1facaraod ivwcstedsQlue~oneyin the
Credit Union. By savi~greguJrJ~ I cao
borrowinoneyf~r mytaxand ~m~uan
A
Fridays
1.00-230pm
it
.
Figure 8. Promoting creditunions in East Anglia
This content downloaded from 194.128.227.202 on Fri, 9 Jan 2015 05:54:22 AM
All use subject to JSTOR Terms and Conditions
exclusion
offinancial
Geographies
whole of Britain.The relativelyhigh numberof
catholicswho are membersof a credit-union
owes
much to theirpromotionby the Catholic Church,
which has a very long historyof opposition to
financial'usury'(Parry1989).
Althoughcreditunions are clearlyincapableof
solving all the problemscaused by financialexclusion, theyare certainlya means by whichsavings
can be pooled and then distributedin line with
local needs and may even help to stem the
process of financialdynamicswhich would otherwise recyclefundsfrompoorerto richerareas. But
it follows that the amount of money that credit
unions have available to lend is related to the
incomes of theirmembers,since the amountpeople save is a functionof their incomes. It also
follows,therefore,that less creditis available in
poorer areas than in richerareas. Nor is it certain
thatcreditunionswill necessarilystem the rise of
unregulatedmarket financialservices in poorer
areas, since there is evidence that moneylenders
are a major cause of indebtednessin certainparts
of the IrishRepublic,despitethe preponderanceof
creditunions there (Berthoudand Hinton 1989).
Indeed, Berthoudand Hinton (ibid.,93) provide a
salutarywarningthat 'there is little sign that in
Britaina credit union is a substitutefor other
types of credit'but they provide 'a usefulextension of the range of credit sources available to
middle-income
families'.
Moreover,Berthoudand Hintongo on to suggest thatcreditunionsmay even be responsiblefor
one type of financialexploitationfor
substituting
another.Figure9 illustrates
therelationship
between
savings and borrowingswithina creditunion and
withinthe financialsystemmore generally.In the
lattercase, those on low incomes tend to have
borrowingsin excess of savings,while those on
high incomes tend to have savings in excess of
Thismeansthatthesavingsof thoseon
borrowings.
highincomesare beingrecycledin theformofloans
to those on low incomewho pay forthismoneyat
marketrates of interest.However, withina credit
union thisrelationship
is inverted.Those on lower
incomestendto have savingsin excess of borrowings while those on higherincomeshave borrowings in excess of savings. Thus, in the case of a
creditunion,the savingsof thoseon lowerincomes
are being recycledintoloans foruse by those with
higher incomes. But, crucially,those on higher
incomesare chargedat levels of interestwhichare
well below the marketrate(ibid.).
335
Within
credit
union
Elsewhere
170
170Average=100
Average= 100 170
70
/"
150
-150
-
130
/
/
-
o110
o
110
g
so
90
70-
/
sot-
5o
30
- 130
/
70
so
/
I //
,
50
100
Available income
--
Savings
-
50
100
5O
30
Borrowings
Figure 9. Savings and borrowings in credit
unions and in the formal financial services
market
Source:
Berthoud
andHinton(1989,Chart
7.2)
However, while creditunions may create their
own unique form of financialexploitation,it is
nevertheless
difficult
to disagreewithBerthoudand
Hinton(ibid.,122) thatwhilecreditunions'maynot
have createdeconomicequality. . . theyappear to
be muchless unequalthantheoutsideworld'.Being
insidea creditunionis clearlymorefavourablethan
being outsidetheformalfinancial
systemaltogether
and
of a creditunionis moreusefulto those
membership
withlow incomesthanto thosewithhigherincomes
whowouldhaveno difficulty
in savingor borrowing
withfinancial
institutions.
(ibid.,122)
The problemin Britainreallyresidesin the fact
thatnot only are creditunionsthinon the ground
but thattheyare not complemented
by otherforms
of AIA. There are no communitydevelopment
banks to speak of,whichwould not only serve to
mobilizelocal savings but also act as conduitsfor
flowsof externalcapitalintoareas thatthefinancial
system would otherwise avoid. One hopeful
initiativehas been the Local Investment
Fund (LIF),
modelled on US communityinvestmentfunds,
launchedby Businessin the Community.The aims
of the LIF are laudable,being to providefundsto
those inner-cityareas increasinglyexcluded from
the financialsystemand to provide the flows of
credit needed to fund economic development.
Indeed,the plan is to attemptto repeatthe success
of communitydevelopmentbanks in the US, such
as the ShorebankCorporation.However, the LIF
venture
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336
AndrewLeyshon
andNigelThrift
willnotsolveBritain's
variousinner-city
evenin arguments;forexample,in Francestate law gives
crises,
20 years... For a start,manysuchareasare much everyone the rightto a bank account (Kempson
closerto decaythandecline,and [LIF's]commercial 1994). In Britain,
theidea thatpeople shouldbe able
a significant
residueofcapitalin the to be 'dual citizens' of both the state and the
approach
requires
[tobeginwith].Second,theLIFwillhave
community
all of ?3 milliononce it has finished
its current financialsystemclearlystillhas some way to go.24
The second developmentis to produceimaginaexercise- a pitiful
effort
even by the
fund-raising
of the $40 millionwithwhichShorebank tive proposals formore in the way of alternative
standards
financialinfrastructure
whichcan,in particular,
supbegan20 yearsago. (Cowe 1993)
and low-costloans to
ply thebasic bankingfacilities
low-incomehouseholds,to replacetheinfrastructure
Conclusions
whichis now beinglost or whichhas neverexisted.
Financial-infrastructure
withdrawal and financial The most obvious move would be to allow Post
exclusionhave thepotentialsignificantly
to deepen OfficeCounters,withitsnetworkof 20 000 outlets,
levels of unevendevelopmentin economiessuchas to provide such services.Because of privatization
thoseof Britainand theUnitedStates.But thereare proposalsthismay prove to be a difficult
proposiways in whichtheseprocessescan be resistedand tion.In sucha case,a rangeofotheroptionssuggest
countered,some of which we have documented. themselves,some of whichwe have mentionedlike
Although the possibilitiesof resistancecurrently communitydevelopmentbanks,communitydevelseemmorehopefulin theUnitedStatesthanBritain, opment funds and credit unions; others should
retailoutletsprovidinga range
it is importantto emphasizethatit is stilleasierto includenon-financial
live outside the financialsystemin Britainthan in of financialservices.25What seems certainis that,
abanthe United States,largelybecause of the way in in presentcircumstances,
processesoffinancial
whichrecipients
of benefitsand pensionsare able to donmentwithinmanyareasof Britainmaywell lead
starvation'.
Such a bleak
exchangetheirchequesforcash at thePost Officein to theoutbreakof 'financial
a way that is impossible in the United States futurerequiresimaginative
policyresponsesand the
(Mitchell 1990). Of course, the introductionof politicalwill whichcan be generatedonly through
automated cash transfer(ACT) to the benefits imaginativecampaigning.
systemin Britainmay changethissituation.23
What thediscussionin thispapersuggestsis that
Acknowledgements
the Britishcase requirestwo main develcurrently
opments.The firstof these is more in the way of Earlierversionsof thispaperwere presentedat the
resistance.We suggestthatone way to achievethis 1993 Conferenceof SocialistEconomistsin Leeds,
is by focusingon the idea of 'financialcitizenship'. the 1994 Meeting of the Associationof American
Traditionalstatesare, amongstotherthings,about Geographersin San Francisco,and at seminarsin
boundaries.Statesdefinespatialand otherbounda- the School of Geography and Earth Resources,
ries of inclusionand exclusionand, on the basis of Universityof Hull, and the School of Geography,
We would liketo thank
these boundaries,confercitizenshipand rightsto Universityof Birmingham.
those on the inside.States have an 'inside'and an all those presentwho made helpfulcommentsand
'outside',a 'here' and a 'there';theyhave citizens suggestions,as well as Adam Tickell,Roger Lee,
(on the inside) and non-citizens(on the outside) Peter Daniels and the anonymous referees.The
financial
(Walker1993). Contemporary
systemsalso usual disclaimersapply.
have thesecharacteristics.
They drawborderswhich
are difficult
to transgressand which are currently Notes
being rolled up. What we need is a concept like
1. See Berthoudand Kempson(1992); Ford (1988,
financialcitizenshipwhichcan relatethe two, both
1991); Kempson(1994).
as a means of puttingpressureon statesto reform
2. ForLondon,see Bird(1993);Brownhill
(1990);and
theirfinancialsystemsso that they includerather
KeithandPile(1993);forNew York,see Fainstein
than exclude and of puttingpressureon financial
seeDavis
(1993);forLosAngeles,
(1994);andSmith
systemsto realize that they have some state-like
see Merrifield
(1993).
(1990);forBaltimore,
responsibilitieswhich reach beyond consumer 3. This is why lendingmoneyto such powerful
economic agents is sometimesdescribedas
sovereigntyintobasic humanrights.In some other
i.e. whenmoneyis exchangedwitha
countriesthereis a moregeneralacceptanceof such
'investing',
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Geographiesof financialexclusion
4.
5.
6.
7.
8.
9.
337
cost of runningthe account.With interestrates at
low levels, this figurewould need to be revised
upwards.
Although the rise of telephone banking has the
potential to compensate for some of the worst
withdrawaland
excesses of financial-infrastructure
financialexclusion, it must be pointed out that
these services are designed specificallyto attract
middle-classcustomers.FirstDirect,
more affluent
MidlandBank'shighlysuccessfultelephonebanking
subsidiary,is a good case in point. Accordingto
Richardson(1993, 17), 'its customerprofilediffers
from that of the high street bank with most
customersfallinginto the A, B, and CI socioeconomicbands,with66 per centin the 25-44 age
group.The bankdescribesits customersas "upscale,
confidentand articulate"and it would appear that
Midland has, so far,been successfulin carvingout
an up-market
clientbase throughtelebanking'.
As the ConsumersAssociation(1994, 4) foundout
when it conducted an impromptu survey in
response to complaintsthat some of its members
were being denied insurancecover in certainareas:
probity.
See Cressey and Scott (1991, 1992); Halfordand
'As well as puttingup prices,oftenby ridiculous
amounts,and paying out on less claims ... some
Savage (1993, 1995); Leyshon and Thrift (1993);
insurersare tryingto cut theirlosses by refusing
Leyshonet al. (1993); O'Reilly (1992a and b).
cover to those people theyconsiderto be highrisk.
However, it should be noted that a study by the
Our surveysuggeststhata couple of claimsmay be
Boston ConsultingGroup (1992) has argued that,
while a typicalbank branchhas an annual cost of
category...
enough to put you in the "high-risk"
?300000, in a well-run bank few branches
we contacted16 insurersanonymously,askingfor
would fail to cover their costs. Further,branch
quotes on a three-bedroomedhouse in London
closuresmake it more difficult
to retainand recruit
withtwo theftclaims(?900 and ?1,400) in the last
customers.In summary,Boston ConsultingGroup
year. Only one insurerwould quote'.
calculatedthata closureof 20 per cent of branches 12. For example, in 1994 The Sunday Timesreported
would lead to onlya 2 per centsavingin totalcosts
that ProvincialInsurancehad set up a telephoneand thereforesuggested that branch remodelling
based motor-insurance
sub-divisionto exploit the
commercialadvantages of socio-spatialrisk-pricing
(makinga branchmorelikea retailoutlet)was more
effectivethan closure in most cases. Moreover,
by focusingexclusivelyupon low-riskcustomers.
banks have various options other than closure
The company utilizes a geographicalinformation
whichcould reducetheircosts and exposureto risk
systempackage called 'PremiumWatch' which,it is
in low-incomeareas (Alex Ball,BankingConsultant,
claimed 'identifiesthe best risksby analysingthe
pers. comm.,1994). First,bankscould cut overhead
applicant'sclaims record,lifestyleand residential
costs by sharing facilitiesin multiple-occupancy
area' (Gardner1994, 5-1). The philosophyof the
'bankinghalls'. Secondly,banks could externalize
companyis made clearby a commentmade by the
costs and risksthroughfranchising
servicesand/or
managingdirector:'Motor insurershave tended to
by encouragingmanagementbuyoutsof branches.
lumppeople togetherin largegroupsin a way that
In thisway, brancheswould retaina formallinkto
does not fullyrewardcarefulpeople. We can assess
the bankbut would take a greaterresponsibility
for
theirriskratingsby lookingat exactlywhere they
their economic fortunes.Thirdly, banks could
live - using all the letters of the postcode create low-cost sub-divisionswhich would exist
therefore
basingpremiumson locationsas preciseas
specificallyto provide basic financialservices to
groupsof just 15 houses. Our data show thatthese
low-incomecommunities.
and
verywell definetheirlifestyles
'micro-localities'
Which in 1992 was estimatedto be between ?60
characteristics'
(ibid.,5-1).
and ?90 per accountper annum(Gapper 1992).
13. Indeed,Conaty (1993) reportsthatan investigation
In 1992, it was estimatedthat an account would
into such services in Birminghamrevealed some
have to run average balances of at least ?1000
lenders were charginginterestrates approaching
beforeit generatedsufficient
income to cover the
5000 per cent per annum.
public company in returnfor some of its share
capital,or to a governmentin returnfora governmentbond.
institutions 10.
Butnote thatin Britain,at least,financial
have dramaticallyreduced the costs of calculating
ofborrowersin contract-credit
thecredit-worthiness
marketsby automatingthe process. Potentialborrowersare requiredto completeapplicationforms
whichare thenassessed by credit-scoring
computer
than the
systems.This is far more cost-effective
relativelyexpensive face-to-faceinterviewwith a
bank manager which was once the predominant
way in which access to the financialsystemwas
policed. However, tellingly,while the costs have
have done little
been lowered,financialinstitutions
to pass on these savings in the pricecharged for
such credit.
Although in Britain this is changing with the
introductionof 'premier' banking accounts for
more affluentcustomers.Certaincreditcards (e.g. 11.
AmericanExpress,Optima) also chargedifferential
interest rates based on indicators of customer
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All use subject to JSTOR Terms and Conditions
338
AndrewLeyshonand Nigel Thrift
14.
However,it mightbe argued thatthe proliferation
federalgovernmentspending'(Davis 1993, 51). He
of automatedtellermachines(ATMs) counteracts
argues thatit is impossiblefor such organizations,
the effectof bank branchclosure in poorer comno matterhow laudable theiraims,to compensate
munities.But this misses an importantdifference
for the severe cutbacksin governmentfundingof
between bank branches and ATMs. While the
inner-city
development.
growing numberof ATMs in Britainmeans that 22. The exceptionsthatprove the rulehere,of course,
cash transmission
is stillpossible in areas subjected
are the way in whichthe Bank of Englandallowed
to financial-infrastructure
withdrawal,they do not
BCCI to collapse in 1991 and the failureof the
Bank to constructa rescue package for Baringsin
provide creditwhich is more importantfor longtermlocal economicdevelopment.
February1995. BCCI played only a minor role
See Caskey (1994); Cloud and Galster (1993);
withintheBritisheconomyas a whole.The collapse
of the bank did immenseeconomicdamage to the
Hoyt and Choca (1989); Leven and Sykuta(1994);
Robinson(1991).
where the bank did most
manyAsian communities
See, for example,Erickson(1971); Harvey (1973);
of its businessin Britain,as well as forcingup local
taxes in the Highlandsand Islands where the local
Harveyand Chaterjee(1974); Stone (1975); Werner
et al. (1976); Yaspan (1970).
authoritywas lendingmoney to the bank at relaSee Badain (1980); Heimer(1982); Hoyt and Choca
tively high levels of interestat the time of the
(1989); Squires et al. (1979); Squires and Velez
collapse. However, the Bank of England clearly
(1987, 1988).
calculatedthat these localized losses were a price
The problemof comingto a hardand fastdefinition
well worthpayingto close down a bankengaged in
of 'community'
is revealedby thefactthatthe CRA
extensivePonzi financing
operations,whichin time
could have ensnared larger and, for the British
makes a distinctionbetween two types of comeconomy as a whole, more importantbanks. The
munityand suggeststwo ways of delineatingthem.
On theone hand,banksservean 'entire'community
to a failure
collapseof Baringswas widelyattributed
of internalcontrolmechanismsto control'rogue
whichis seen to be made up of one or more 'local'
On the otherhand,local communities
communities.
dealing. Certainly,this was the view of Kenneth
Clarke, the UK Chancellor of the Exchequer,in
may be takento residewithinexistinggeographical
his statementto the House of Commons on 27
areas, such as counties,or withinwhat the CRA
describesas 'the effectivelending area territory'.
February1995.
the 23. The EmploymentService introducedACT on a
Adding fuel to the problemsof interpretation,
CRA adds that,'Both typesof territory
are subject
rollingprogrammebetweenMay 1993 and autumn
1994. The BenefitsAgency introducedACT for
to certainadjustments'(FederalRegister
1978).
Income Support from October 1993 and for
However, it would be mistakento assume thatall
creditunions are communitarian
in orientation.To
incapacitybenefitsfromthe end of January1994.
workat all,themembersof thecreditunionmustbe
Currently,clients can choose whetherto receive
benefitby orderbook and girochequeor to opt for
unitedby a commonbond. This may well be the
ACT (Kempson 1994).
factthattheylive in the same local community.
But
many more credit unions are based on non- 24. One avenue that is currentlybeing explored by
membersof theNew EconomicsFoundationand the
residentialcommunities,
such as workplaces,where
UK Social InvestmentForumto bringpressureto
the membersmay live in very different
types of
bear foran EU BankingDirectivewhichemphasizes
residentialcommunity.
Indeed,the vast majorityof
credit unions in the United States are based on
of banks.
the social responsibilities
workplaces (77 per cent) (Berthoudand Hinton 25. A number of retailersalready offer'cash-back'
facilities.
1989, 7-8).
For example,The FoundersNationalBank,based in
the south-central
districtof Los Angeles and owned References
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