The Community Reinvestment Act, is it “window dressing” or can we count on it to ensure banks will do their part in rebuilding our community?
In case you didn’t know the Community Reinvestment Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations. It was enacted to address the practice of redlining. 1 “Redlining” refers to the practice whereby lending institutions refused to offer home loans in certain neighborhoods, based on the income, racial or ethnic composition of the area. The term “redlining” stems from some lenders’ practice of using a red pencil to outline such areas. The CRA has extended and clarified the long-standing expectation that banks will serve the convenience and needs of their local communities.
Banks make big promises to support especially when it comes to making the grade on their CRA Performance. Banks can receive one of four ratings: Outstanding, Satisfactory, Needs to Improve or Substantial Noncompliance. The latter two ratings can make or break the bank by impacting its ability to to grow and expand in the community.
The law not only holds banks accountable for their record of lending in low to moderate income communities but it also says they must investment and serve (provide money and volunteer) to support programs that address the needs of the community. In other words, banks are graded on how they respond to needs of low to moderate income communities. Those communities that might otherwise be “redlined” or deemed undesirable to invest or pursue business opportunities.
Every bank has a tag line, they use it to help customers remember who they are and what they do. For example you probably heard “What’s in your wallet?” There are many others but one in particular stands out to me in the days and weeks following the storm relative to the banking industry’s response to Hurricane Harvey. This bank says their committed to “…raising your expectations of what a bank can be…“. Hmm, as I thought about that and began to look at all the announced relief efforts by major corporations and in particular banks, I must say I have been a little underwhelmed by the banks response to the community in the wake of the catastrophic events that we have experienced in Texas but particularly in Houston the 4th largest city as Mayor Turner and many of our officials tout. I scratch my head as I ride down the street and note the number of banks upon banks in more affluent areas of our city and then other communities are virtual “banking deserts.” Again, I ask is CRA for real or is it just fancy “window dressing?”
I did a little research and it seems that some banks have made some real commitments and others have not. All or most banks have made substantial contributions to Red Cross that happened within days of the storm, $100,000 or more. This is what any organization would and should do. But for a Texas based bank that says they are “raising expectations” I expected a more robust response. Wells Fargo, Bank of America, JP Morgan have given at least $1 million with apportions going to Red Cross and local nonprofits (boots on the ground) organizations whose are in direct contact with their communities.
What about the small business owners, what are the banks doing to help them come bank online. Small business is the “economics engine” of our economy. Are banks investing in helping those that drive our economy to recover. I don’t see much happening outside of FEMA and SBA. Has your community banker been out or sponsored a meeting in your community to discuss your needs? While I realize we are all trying to recover, banks that have a regional presence should be at the forefront like first responders in hot pursuit of its customers and community base to lend assistance to recovery efforts. As a small business or business chamber has your lender or someone from the their Community Development or Community Reinvestment Department contacted you since the storm. Probably not…that would be a “raise your expectation” response. Again, effective legislation or mere “window dressing”, I’m not sure?
I’ve seen many individual contributors step up and commit $1 million to the relief effort. If one person can commit $1 million think how much more a bank can do. Banks take our individual and business deposits, invest and lend us money and pay us little to no interest in comparison to what they profit from investing our deposits and the interest charged on loans they make in the community. They make 100 of millions of dollars to return to their shareholders many of whom do not reflect the community. Don’t be fooled by the window dressing, it seems like a modern day sharecropper system to me. I don’t say that aimlessly, I checked the earnings of the top 25 banks in Texas and as it March 31, 2017 banks particularly the larger banks reported Net Income (that’s after all the bills are paid) between $29,000,000 and 215,000,000 or more depending on the size and assets of the bank. This is profit made from your deposits and loans. I think they an afford to part with $1,000,000 to address an event of this magnitude. Here’s the short list of some of the most notable Texas Bank’s reported net income by assets and their commitment to the Harvey relief effort.
#1. JP Morgan – Net Income was not available but they announced at least $1,000,000 with in days of the storm/ flooding – August 28, 2017
#2. Bank of America – Net Income was not available and they also announced at least $1,000,000 contribution within days of the storm/ flooding – August 28, 2017
#4. Comerica Bank (Dallas based) $215,000,000 in Net Income announced a $100,000 contribution to Red Cross
#7. Frost Bank (San Antonio based) reported $86,000,000 in Net Income and announced at least a $1,000.000 to contribute to local charities (boots on the ground) within days of the storm/ flooding – September 1, 2017
# 8. Prosperity Bank (El Campo based) reported $29,000,000 in Net Income and no mention of any commitment to any organization for disaster recovery. Either they have not made any commitments or they just didn’t make the information public. If you Bank here call and find out.
#9. Texas Capital Bank ( Dallas based) reported $44,000,000 in Net Income and announced $100,000 to Houston Children’s Relief Fund as of September 8, 2017.
#14. Wells Fargo Bank South Central (Houston based) reported $59,000,000 and announced $1,000,000 within days of the storm/ flood – August 28, 2017
There are at least 100 Texas based banks whether here in the Houston area that could generate CRA credit by making a contribution to local nonprofit organizations covered under a federally declared disaster zone. Hurricane Harvey, a “500 year event” warrants a response from the banks. While there is no previous example that exits for banks to draw from, I do know that $100,000 to the Red Cross or no response isn’t enough to address the devastation that has occurred. We are now at least 3 weeks post the torrential rain and flooding caused by Harvey and it seems like the banks have sent a bandaid to address a patient that requires an organ transplant and posted it on Facebook with a happy face emoji. STOP, banks need to do more! Comerica, Regions, Texas Capital and many others will you commit a $1 million to relief in Texas? The community needs and wants to hear from you.