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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) Stable URL: http://www.jstor.org/stable/622654 . Accessed: 09/01/2015 05:54 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp . JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected]. . The Royal Geographical Society (with the Institute of British Geographers) is collaborating with JSTOR to digitize, preserve and extend access to Transactions of the Institute of British Geographers. http://www.jstor.org 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 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 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 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 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 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 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 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 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 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 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 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 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 AndrewLeyshonandNigelThrift 318 ADVERTISER'S ANNOUNCEMENT LLOYDS PRIVATE BANKING COMES TO CLIFTON m The Bristol office of Lloyds Private Banking Limited - now housed in elegant new offices in Clifton- is one of the largest in the UK, with funds under management approaching ?200 million. One of31 officesthroughout Englandand Wales,theBristolofficeserves and Wiltshire. 1,300privateclientsin Bristoland Bath,northSomerset The movefromcitycentreto Heathside,131 PembrokeRoad,Clifton is partofthebank'sdriveto attention and one-to-one and discreteservice based on individual providean effective relationships. witheasieraccess to LloydsPrivateBankingadvisershope thattheconvenienceof Clifton, and on-siteparking, willmakeclientvisitsfareasierthanin thepast. motorways S advice professional to safeguardand augmenttheirassetsina Manywealthypeople need investment management worryfreeway.The LloydsPrivateBankingserviceis builtaroundtheprovisionof independent, adviceon investment, financial and taxnmatters, professional whichinclude: * Investment * PersonalTax Management Management * Portfolio * Estate Administration Planning * UnitTrust * Enhanced Management BankingFacilities Independent Famous landmarks... How to find us: Themanagement team(fromrightto leJt)is NigelRichardson,MikeRichardsand RobinGilbertL of success... Unrivalled record With 2,600 quoted companies on the London Stock Exchange plus thousands more registered overseas, and no end ofnew private or government sponsored investment plansIing introluceddaily,itis virtually kir to individuals 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 As a generalmarker, elephantsymlxbol. the z(x) is within 200 yards of the office. role complete withan eight-person liftand private parking, by protected prtected parking, theoriginalwalled garden. 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 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 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 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 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 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 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 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 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. 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 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. 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 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 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 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 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 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 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 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. 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 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'. 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 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 All use subject to JSTOR Terms and Conditions 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 CREDIT Iw-etoumy~t~ lkf: Et?~tltms InuyttceVlg$ wc.btcso Dcebrbdsac&0 dpI~4frla ?80.I py no awekoffmy oan ne yatp.We hv pu"i t, I~trcs 4 [buhaabigabniwo to?tto cnpptokadlaIy~u~tr padowa~n acin adLP so.I yh ie ~ovr18*unts 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 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 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', 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 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 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 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 investors, by a consortiumof community-minded millionin 1992 on an asset Amin A and ThriftN 1992 Neo-Marshalliannodes in managed to earn $1.3mainlythroughthe base of ?74 million, Journalof Urban and provision global networks International of mortgagefinancein anotherarea largelyabanRegionalResearch16 571-87 doned by more formalfinancialinfrastructure statistics 1993 vol. 10 Statistical (The Annualabstract ofbanking Economist Unit,BritishBankersAssociation,London 1993). However,an importantnote of cautionabout such Auger D A 1993 Urbanrealities,US nationalpolicyand the Clintonadministration RegionalStudies27 807-15 developmentshas been sounded by that astute chroniclerof the US urbanlandscape,Mike Davis. Badain D I 1980 Insuranceredliningand thefutureof the urbancore ColombiaJournal He warnsthat'community of Law and Social Problems developers... are being 16 1-83 promotednot as auxiliaries,but as surrogatesfor 15. 16. 17. 18. 19. 20. 21. 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