The use of vouchers to cause a better relationship between profits and the cost of putting on smaller business loans and the risk of such loans is an idea whose time might just be now. We can make the private-sector markets work. We must forsake the all-toocommon banker's tendency of giving lip service, at best, but mainly ignoring capital formation in our minority business communities. Most of all, of one thing am I most sure. We need bold economic-focused solutions to solve the problems that just weeks ago came up through the nation's rug-a rug that is threadbare and strained from being so well swept and from hiding so much beneath. Capitalizing Minority-Owned Banks I want to return for the last couple of minutes of my time to the image of the World Trade Towers and the milk container. Sad to say, but minority-owned banks will never in our lifetimes and perhaps never at all-be significant engines of capital formation in our inner-cities, and for African-Americans and Hispanics, if minority-owned banks stay constrained by the fundamental scarcity of capital that exists in the minority community. We must reject horse-and-cart, chicken-and-egg rationalizations. We must reject these and all the other bromides that are conveniently invoked to keep minorities constrained by the age-old conundrum-You can't get, if you don't got! We need imaginative, affirmative and resourceful initiatives to build the capital bases, the economic impact of minority-owned banks. And speaking for the National Bankers Association, of which my bank is a member, I am convinced that there exists innovative ways that the giant banks in this country can foster the growth of minority-owned banks through direct investments in minorityowned banks. In my own city I have been in discussions with some of the major banks about several alternatives for such an initiative, and I shall continue to encourage and prod and push these banks. And I'm pleased that some progress on the matter of major banks providing capital to minority-owned banks has been made recently in other states-in Louisiana, in Massachusetts and New Jersey. One would think that such an initiative by the major banks would be an enlightened response to the spirit of the Community Reinvestment Act. Well, we that is the NBA-have learned a little about the letter and spirit of the CRA legislation. The Act says all kinds of things that we with an "NBA ear" feel fully supports and encourages the appropriateness of such an economic development activity as major banks providing capital to minority-owned banks. But the Act did not specifically cite investments in minorityowned banks. I'm pleased that in my own state, the New York State Superintendent of Banks-Derrick Cephas-will be imminently releasing guidelines to the state's bank examiners that will specifically cite investments in minority-owned banks as a CRA initiative for which a major bank can receive credit. 56-545-93 - 17 And I look forward to a similar specific statement by Federal bank regulators. The major banks and the bank Regulators need action-inducing regulations and the encouragement of Congress to reinforce the capital bases of minority-owned banks so that minority-owned banks can maintain the presence of bank branches in underbanked communities and establish branches in unbanked neighborhoods. As this Senate Committee knows, last year the Senate and the House came to an agreement that investments in minority-owned banks by major banks should be specifically listed as CRA effectiveness evaluation criteria in the Bill known as the FDIC Improvement Act. Unfortunately, that agreement never found its way into the final Bill passed, due to what, we were told, amounted to a clerical error. And even more unfortunately, we-that is, the NBA-we were told, a Technical Corrections Bill would not occur. us. That's all behind us. So too is L.A. But a lot remains ahead of Are we to have a society in which those who have not been able to grasp even the bottom rung of the economic ladder must remain off the economic ladder because of the sanctity of the conundrumIf you ain't got, you can't get! We need to dramatically attack capital formation. I would urge this Committee to give some further thought and study to the two matters I have addressed here today. 1. Measures to stimulate the banking industry to compete actively to provide funds to minority-owned businesses-perhaps through a version of the Vouchered Interest Program I have suggested. And 2. Measures to encourage the major banks to provide capital to minority-owned banks. Our communities need to see action-in chambers such as this, in major bank and Corporate America board rooms-action that focuses on capital formation. In the absence of such capital formation action and other actions designed to address the great and visible divides in our society, one has to conclude that those who are the most oppressed, who are the most left out, who are the most ill-treated-that is, those with the least to lose will take actions of their own. We saw those actions twenty-five years ago, and regretfully we have seen them again. STATEMENT OF CARLTON J. JENKINS UNITED STATES SENATE SENATE COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS June 23, 1992 IMPEDIMENTS TO ACCESS OF CAPITAL IN MINORITY COMMUNITIES The Financial Disenfranchment of Minority Communities Reduction of Banking Services The resolution of failed thrifts and banks by the RTC and FDIC invariably results in the closure of branch locations in minority communities. A review of branch closings from institutions liquidated by RTC since its inception reveals that literally hundreds of banking locations have been closed in conjunction with those cases that were liquidated. This does not include the closing of branches by an acquiring institution after it has acquired a franchise from the RTC nor does it include similar figures from the resolution of failed banks by FDIC. With the current trend of mergermania among the large money center and regional banks in the United States, this problem will only be magnified. During the last 10 to 15 years, following the exodus of the affluent and the mostly white middle class to the suburbs, numerous lending institutions closed the majority of their inner city branches. This deterred the flow of credit to these communities. The limited flow of credit led to the decline of once economically healthy communities throughout the United States. White flight is continuing from the inner cities across the county. For the most part, minority-owned financial institutions have unique customer bases. Their individual deposit customers maintain relatively low balance accounts. Many are welfare recipients or receive other government subsidies or are retired. They tend to write more checks on these low balance accounts due to personal security reasons involving the handling of cash in minority neighborhoods. Most of their corporate accounts are small businesses which also maintain low balances but are high volume accounts. Unlike their majority institution counterparts, most of the customers of minority-owned financial institutions visit their bank offices at least on a weekly basis, utilizing tellers in the lobby area, again, for security reasons. Other accounts, such as minority churches and fraternal organizations constitute the larger deposit account customers. Minority banks have higher than normal employee/deposit ratios due to the character of their deposit customer base. This is not the targeted customer base for majority banks. Most majority banks are attempting to divest themselves of this high cost customer base as they are, for the most part, unprofitable accounts. Therefore, minority-owned banks are serving an increasing segment of the population who, through the imposition of increasing service charges and other fees as well as the closing of branch facilities, would find themselves without a financial services provider. Shortage of Minority-Owned Financial Institutions in the U.S. According to the Federal Reserve, there are only about 125 minority-owned banks and thrifts are operating in the United States today. This is about the same number of minority owned financial institutions as there have been for the last 20 years. Most are small, with assets with ser below $100 million. Capital starvation in the inner city is not a new problem, of course, but in many areas it seems to have worsened in recent years. Statistics are hard to come by, but evidence of the problem is available to anyone really interested in the problem. According to a Wall Street Journal report in the June 11, 1992 edition, it was reported that only two of the roughly 50 major banks in the Washington, D.C., area maintain branches in the business district of Anacostia and neither has a lending officer. The Anacostia area is located only about a mile from Capital Hill across the Anacostia River. Across town, in the aging commercial corridor of Columbia Heights, which was among the neighborhoods hit by three nights of rioting after a police shooting last year, there is only one bank branch. During the 1970's banks began an exodus from minority neighborhoods. According to a report of John Caskey, a Swarthmore College economist, who has researched patterns of bank branch closings in five major cities, the total number of bank branches rose to 447 in 1989 from 302 in 1970, but banks pulled out of poor neighborhoods as they opened branches in wealthier communities. Mr. Caskey found that 23% of richer neighborhoods had bank branches in 1970, and that rose to 43% in 1989. But only 18% of the poor census tracts had branches in 1970, and that fell to 14% in 1989. "There is a clear avoidance of minority neighborhoods," Mr. Caskey says, "that shows up even after adjusting for income." The federal government and some cities have fitfully tried to channel credit into distressed neighborhoods, but inner-city entrepreneurs, perhaps even more than those elsewhere, are deeply distrustful of public-sector solutions. Rather than handouts from politicians and bureaucrats, business owners in inner-city neighborhoods simply want a chance to get the same deal that businesses elsewhere expect: A little capital at market rates, and a few basic financial services. |