Inherent racism within bank credit systems reduces access to credit for ethnic minorities
As we await the publication of a government report into racism in British banks’ lending practices, research by one leading banking expert suggests that racism is rife and appears inherent in the bank lending system, and has existed through the ‘boom’ years as well as during the current and recent financial crises.
Non-white households are more likely to be excluded from consumer credit, even if they have comparable credentials to white households, according to work by Prof Molyneux at Bangor University and colleagues from Hull University Business School. Using the same Living Costs and Food Survey gathered by the Office for National Statistics they also revealed that, compared to white households, Asians are more likely to have less access to bank loans, whereas black households are more likely to be excluded from the credit card market.
Prof Phil Molyneux of Bangor University’s leading Business School, writing in Chartered Banker, calls on policymakers to develop policies aimed at reducing the inequalities that seem to exist within the system. He also argues that there is a strong case to consider legislation that would make the whole process more transparent by encouraging banks to reveal information on lending and other financial activities. This transparency in itself, he argues, would ensure that discrimination does not take place, whether in developed or developing countries.
Prof Molyneux says: “Surprisingly, we noticed a rise in discrimination during the boom period between 2004-7, a time when banks are reported to have relaxed their lending standards. It may be that relaxation of credit standards only applied to white households; this is likely to have further increased the gap of credit accessibility for non-white households.”
“The reasons for the racial discrimination are unclear. It may be due to long-established prejudices of bankers enshrined in credit-granting decision-making, and possibly built in to credit scoring models. That is why these processes need to be re-appraised and made transparent so that they can be challenged.”
Publication date: 29 July 2013