A European Regulation for Social Responsibility of Banks? Learning the lessons from the US Community Reinvestment Act

This article aims to discuss if and in what form regulation may prove efficient in implementing social responsibility into the banking business. It uses the United States Community Reinvestment Act as a benchmark to develop ideas for an efficient European regulation.

The paper argues that:

• There have been two contradictory developments in financial services:
  • An increasing need of access to financial services for people of all classes,
  • Increasing pressure on financial institutions to select clients and regions according to cost-benefit criteria;
• Idea of social responsibility iin banking is not new, however, efforts in this direction have been partial and peripheral to banking;
• The US regulatory environment enforces transparency in business activity, this is based on the presumption that credit institutions should conduct their business in a socially responsible way.

The paper analyzes the US Community Reinvestment Act (CRA) and finds the following implications for European regulation:

• The US example is one of private responsibility for the public good;
• It is a good starting point for a new approach in banking regulation, where banking is monitored by its impact on society;
• Such a social obligation is already implicit in most European Union state.

The paper concludes with the following recommendations:

• Develop a legal basis for non-discrimination on social grounds;
• Give priority to private initiatives;
• Encourage credit institutions to be transparent.