Scoring the Banks: Building a Behaviorally Informed Community Impact Report Card for Financial Institutions
Raymond H. Brescia
Albany Law School
Yale Law School
October 9, 2012
18 Fordham Journal of Corporate and Financial Law 339 (2013)
Albany Law School Research Paper No. 12 for 2012-2013
The U.S. financial system faces a crisis. Unlike fiscal crises, this one is of consumer confidence and trust. Recent polls suggest that faith in American banks is at a 40-year low. Many blame the banking sector for having a significant role in causing and exacerbating the financial crisis of 2008 and the deep recession that has followed it. Scandals, litigation and a lack of accountability for conduct that has breached the public trust mean that many consumers of bank services are starting to call for greater transparency in banking practices, financial institutions that are more responsive to community needs, and broader array of alternatives to traditional banks. Movements such as the Move Your Money campaign and Bank Transfer Day have captured the imagination of many bank customers who are looking to use their consumer clout to support financial institutions that are engaged in responsible practices.
Perhaps as a way to counter this crisis in confidence, regulators, local governments and consumers alike seek ways to measure bank responsiveness to consumer wishes and community needs. This paper describes one such tool: the Community Impact Report Card (CIRC). Modeled on other grading systems — like New York City’s method for grading restaurants — and informed by principles of behavioral economics, the CIRC is a tool designed to offer consumers a means through which they can easily comparison shop between banks based on those banks’ effectiveness in meeting consumer demand for accessible and inexpensive products and services, and to encourage banks to strengthen the array of products and services they offer. By providing a range of information about the products and services offered by local banks, and generating a single score for each bank based on this information on a scale of 1-100, consumers will have an easily accessible way to compare how each bank serving the community is generally responsive to community needs and interests. Flexible and adaptable, the CIRC system is designed to be crafted to the needs of local communities and to apply to the array of financial institutions that serve them.
Number of Pages in PDF File: 40
Keywords: Behavioral Economics, Trust in the Financial System
JEL Classification: A13, G21, G28, K23
Date posted: September 30, 2012 ; Last revised: March 28, 2013