Financial Institutions in Disadvantaged Areas: A Comparative Analysis of Policies Encouraging Financial Inclusion in Britain and the United States

The paper compares British and US government policy initiatives to combat financial exclusion and promote community reinvestment. Financial exclusion, a general term for those who lack financial products, is concentrated in a small number of deprived urban areas in larger cities that are also starved of private sector investment. British policies, though they have drawn on US experience, predominantly treat exclusion as an individual problem and pay insufficient attention to the wider interconnections between people and place that underlie financial exclusion. These are more prominent in the Community Reinvestment Act (CRA) that has led to significant improvements in financial inclusion and community investment in the USA. The CRA is underpinned by a more compartmentalised and locally embedded system of financial regulation. Consolidation in the banking sector and the growth of competition between banks and other financial institutions in an increasingly integrated US financial sector threaten this. British policies seek to provide ‘joined-up’ solutions to financial exclusion in a manner that is more in tune with an integrated financial sector where a small number of large banks compete on a level playing field with other financial institutions. The paper highlights the difficulties that these policies face in enlisting the cooperation of financial institutions.