By Curtis Black
August 11, 2010
While Shorebank struggles to survive – with regulators hesitating to back recapitalization efforts, according to reports – community investment advocates say “Shorebank is worth saving” and suggest that policies that favor big banks don’t take community needs into account.
Meanwhile community groups will demand action on banking issues on two fronts tomorrow – picketing US Bank and Bank of America on LaSalle Street, and testifying at a Federal Reserve hearing on modernization of the Community Reinvestment Act.
Something is wrong with policies that bail out big banks after they’ve torpedoed the economy with high-risk investments in toxic subprime loans, while “community banks which have been meeting the needs of low-income neighborhoods for decades” are allowed to fail, said Karen Harris of the Shriver National Center on Poverty Law. (See her post at the Shriver Brief.)
“Shorebank didn’t do subprime loans,” she said. “Shorebank should be the bank being saved.”
Founded in 1973, Shorebank is the nation’s oldest and largest community development bank, serving as the model for scores of smaller institutions.
Harris points out that the unmet credit needs which Shorebank was founded to address continue to exist. Bailout funds that were supposed to provide credit in communities are being hoarded by big banks – and paid out in huge bonuses to executives.
“They’re still not lending,” she said. “The credit needs are still out there.”
Jacqueline Leavy, who works with the Coalition to Save Community Banking, sees “hypocrisy” when regulators call on banks to invest in low-income communities and then crack down on those that do. Regulators are “trying to look tough” in the aftermath of the 2007 bailout, “but they’re not taking into account the real-life consequences on the ground in communities.”
She wonders why a small portion of the bailout funds that were to be dedicated to community banks aren’t being deployed more rapidly.
The tough-cop approach is probably not helping economic recovery. Now “community banks that we talk with are so scared, they’re looking over their shoulder, afraid the FDIC will come after them, that they don’t want to make loans either,” said Bob Vondrasek of the South Austin Coalition, also part of CSCB.
(While we spoke Monday, a housing counselor at SAC learned that Shorebank had approved a mortgage modification, with monthly payments for an Austin homeowner reduced from $1,140 to $790. Shorebank is “a lot better at doing modifcations” than bigger banks, Vondrasek said.)
CSCB was formed last year when the FDIC seized community-based Park National Bank and handed it over to US Bank, the nation’s fifth largest bank. Since then, negotiations to encourage US Bank to continue PNB’s community service have dragged on, and action on even minor commitments has been slow, Leavy said.
SAC and other CSCB members will picket U.S. Bank’s downtown office, LaSalle and Adams, tomorrow (Thursday, August 12, 12 noon), demanding a community benefits agreement including a “community restoration fund” to modify mortgages and restore abandoned homes. They’ll also picket Bank of America, recently identified as “Chicago’s biggest forecloser.”
Also Thursday, community groups from across the city and state will be testifying at a Federal Reserve hearing on modernizing the Community Reinvestment Act, which like Shorebank is the product of anti-redlining campaigns in Chicago in the 1970s. CRA is considered a “remarkable success” in leading banks to begin serving communities they had previously written off.
The Woodstock Institute is calling for expanding the act to cover mortgage brokers, insurance companies and credit unions and to do a better job tracking new activities like online banks and credit card banks.
National People’s Action points out that large banks whose practices have put millions of families in foreclosure have gotten “outstanding” community investment ratings under the current system. The group calls for counting predatory lending against banks’ ratings – and for giving automatic failing grades to banks that offer less credit or inadequate services in minority communities.
Woodstock, which recently identified a trend of “re-redlining” in minority communities, held a series of workshops on the issue for local community groups and reports that “disinvestment and safe and sustainable credit are still pressing needs.” At workshops, community activists “shared stories of how disinvestment was hurting their communities and lamented the dwindling number of community banks that invested in their neighborhoods in the past.”
The hearing takes place Thursday, August 12 from 9 a.m. to 4:30 p.m. at the Federal Reserve Bank of Chicago, 230 S. LaSalle.