Perhaps the most important use of GIS in the banking industry is regulatory compliance (Tavakoli A. 1993). The Community Reinvestment Act (CRA) and the Home Mortage Disclosure Act (HMDA) are both laws which were passed in order to ensure that the banking industry does not practise “red-lining”. Red-lining is the illegal practice of geographically discriminating against groups (primarily minorities) by refusing to meet the credit needs of customers. For example, if a bank has a branch in an area and accepts deposits from customers within that area but refuses to lend money to those customers, that is considered red-lining. Red-lining reporting is done at the census tract level, making it an ideal application for business geographics. Banks use GIS to analyse whether they are guilty of red-lining, and if not, to help prove to regulators that they are not. Theoretically, if they do find that they are guilty of red-lining, they can use GIS to market to specific groups of customers in order to increase their lending activities within an area: I say “theoretically” because I have not heard of a bank that has admitted to using GIS this way since to do so would also be to red-line in a different way, which would also be against the law.
Another key application for banks has been to analyse mergers and acquisitions (Tavakoli H. 1993). To state a complex situation very simply, capital requirements for banking institutions have grown in the wake of the US savings and loan scandal, in which many savings and loan institutions failed because they were undercapitalized, or in other words, could not cover their debts. This has caused unprecedented consolidation in the industry as banks band together in an attempt to meet new capital requirements. In looking for merger or acquisition partners, it is important to be sure that combining with the target banks will improve the bank’s situation, not make it worse. GIS is playing a role for banks who are looking for merger partners. Key questions include: (1) how well is the target banks complying with statutory requirements; (2) how does the target bank’s retail distribution channel (banks and automated teller machines) complement the existing channel; and (3) how healthy is the target bank’s customer base, based on the demographic characteristics of its catchment neighbourhoods.