Chicago's Woodstock Institute in a report published this week said banks whose mission is to do business with low income, minority and other underserved borrowers are under attack by the Bush administration.
Woodstock Institute found that federal appropriations for funding and grants to community development banks have been dwindling for the past two years.
In a related development, legislative provisions through which the U.S. Treasury Department promotes investments in community development banks are being diluted, to the concern of low-and middle-income housing advocates.
"Community development banks have demonstrated their worth by successfully serving minority and lower-income borrowers," Woodstock Institute President Malcolm Bush said.
"It is very sad that the public policies which support these creative and necessary institutions are under attack."
Community development banks' purposes are to serve low income and minority borrowers. The nation's first, in 1973, was Chicago's Shore-bank, which has been joined by NAB Bank, First Bank of the Americas, Seaway National Bank, Illinois Service Federal S&L, International Bank of Chicago and Community Bank of Lawndale.
"These banks find it very hard to raise capital and what we are seeing are two major threats to their ability to raise capital," Bush said.
Still, their business is substantial, while community development banks command a tiny portion of total bank assets. In Chicago, community development banks in aggregate would rank as the 13th-largest lender and have a market share of loans of nearly one percent.
In the Chicago-area market, the leading lender has a market share of 9.8 percent and only four other lending institutions have a share greater than four percent.
The community development banks' share of multi-housing loans is 13.7 percent in lower-income tracts and 13.25 percent in minority tracts.
Woodstock Institute's report said Chicago's community development banks devote a greater portion of home lending resources to low-income and minority communities than do other lending institutions and make loans in significant amounts. They are growing in size, number and performance, the Woodstock Institute said.
Former President Bill Clinton set up a U.S. Treasury fund to help community development banks and other loan sources to benefit low-income borrowers, Malcolm Bush said, starting with an appropriation of $118 million in 2001.
"President Bush's fiscal year 2003 budget is still being fought over, and now it's not clear whether the new amount is going to be between $68 million and $80 million," he said.
"It's really scary news to see a massive cut for the year 2004."
Further, he said, "A revision is currently going on for the Community Reinvestment Acts regulations, with heavy pressure for regulated banks to drop the `investment test' that is part of bank accreditation.
"If they get rid of the investment test, there will be less incentive for regular banks to invest in community development banks," he said.
Woodstock Institute's data describes community bank performance in Chicago and shows that a much higher percentage of community development loans are made to residents of low-income neighborhoods and borrowers than the loans made by other lenders.
"While one would expect community development banks to outperform other banks on these measures, the degree of difference in performance is remarkable," Bush said.
The need for community banks is underscored by a disturbing fact of lending life.
"The persistent evidence of discrimination in home mortgage lending as exemplified in the underserving of key markets with competitive products and the overseeing of those same markets with high cost and predatory programs is a challenge to mainstream lenders and to community development banks," he said.
Referring to the possible funding cutback and to threatened changes in investment-test regulations, he said, "The reversal of these two threats would greatly strengthen an industry that has much more impact on the economics of lower-income and minority communities than its small size would suggest."
Though small, community banks grew steadily between 1992 and 2001.
Their number increased to 39 from 27 and deposits grew to $4.2 billion from $1.72 billion as lending increased to $2.91 billion from $802 million.
Profitability measurements indicate that community development banks are doing well by regular bank performance standards, Woodstock Institute said.
The Treasury Department's new policy suggests a backward step in encouraging minority home ownership, according to Malcolm Bush.
"I think what this shows is that the administration is willing to allow the weakening of a tool that has served new minority homeowners well. We will have the rhetoric, but not the tools," he said.
Photograph (President Bush)
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