How the Other Half Banks by Baradaran Mehrsa

Author:Baradaran, Mehrsa
Language: eng
Format: epub
ISBN: 9780674286061
Publisher: Harvard University Press
Published: 2015-10-05T16:00:00+00:00

REVIVAL OF BANKS WITH A SOUL?

Despite ShoreBank’s politicized failure, the bank had already created a modern banking movement. In 1992, Bill Clinton made a campaign promise that he would establish one hundred banks modeled after ShoreBank across the country.26 One hundred banks would hardly be enough to meet the needs of the many struggling communities, but Clinton did follow through with the modest promise. During legislative discussions about Clinton’s promised community banks, both Republicans and Democrats seemed to recognize the problems of credit disparities. Republican congressman Tom Ridge remarked that “communities without credit are very much like land without rain, nothing grows.”27 Republican representative Jim Leach (of the deregulatory Gramm-Leach-Bliley Act) agreed: “America has a problem. The economy is clearly improving on a very slow basis, yet pockets of America are truly islands of hopelessness that society ignores at its peril.”28 Democratic senator Ted Kennedy said that “whole segments of our people in this country are unfairly denied access to credit, [it is our job] to make certain that financial institutions make credit available to all of those people who can afford to pay it back.”29 Considerable debate took place about the level of government involvement, but not about community banking. One Democratic senator put it this way: “The issue at hand, as I see it, is not whether community development banks are a good idea … but rather how do we establish them.”30

Bailey’s bank would live again! The Riegle Community Development and Regulatory Improvement Act of 1994, commonly known as the Community Development Banking Act (CDBA),31 promised to “promote economic revitalization and community development through investment in and assistance to community development financial institutions.”32 These banks, formed in the likeness of ShoreBank, would be given specific charters to provide financial services to poor communities. The banks were called Community Development Financial Institutions (CDFIs) and would be defined as institutions that (1) had “a primary mission of promoting community development,” (2) “[served] an investment area or targeted population,” and (3) “provide[d] development services in conjunction with equity investments or loans.”33

However, ShoreBank’s ambitious vision—“Let’s Change the World”—was watered down into legislation, and even what made it into law was quietly gutted by subsequent legislatures. Congress never appropriated the full amount authorized by the CDBA for the CDFI fund, which would have enabled government investments in community banks.34 The George W. Bush administration sharply reduced funds to the CDFIs.35 The funds, never robust or popular, diminished even more significantly after the financial crisis. At their peak, there were one thousand CDFI’s in the country, much more than President Clinton had promised. However, the majority of the funds went toward community development projects, as opposed to banking services for the poor. According to the fund’s financial disclosures, the majority of investments were allotted first to real estate development in low-income communities and second, to businesses operating in those areas.36 Although these are important community-building investments, they are usually undertaken by external firms and developers and do not increase financial services to community members.

The

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