Last week, the Associated Press ran a news item that should have created a wave of teeth-grinding throughout the financial services industry: Between 2004 and 2008, 10,000 full-service bank branches sprung up across the country, but barely one in 10 of these branches were located in inner-city neighborhoods with a predominantly minority population.
Of particular note to the Associated Press' coverage was the activity of the large banks that received billions in federal bailout dollars. It appears those banks added 6,800 branches to their respective branch networks between 2004 and 2008, but less than 900 were located in minority neighborhoods. And as the economy began to teeter in 2008, the minority neighborhood branches were the first to get shut down.
On the surface, you cannot blame the banks for concentrating their branch openings in the affluent suburban markets or business-heavy urban downtown locations. After all, they were following the logic attributed to the celebrated bank robber Willie Sutton – they went where the money is.
However, this news only compounds the long-held notion that the financial services industry has never been truly supportive of the nation's minority communities. After all, the 1977 Community Reinvestment Act didn't just pop up because some jolly folks in Washington wanted to playfully bedevil the banking industry with additional regulatory burdens.
Within the mortgage banking side of the industry, the current crisis has seen a number of racially tinged complaints about the seemingly disproportionate number of African American and Hispanic borrowers who received subprime home loans. In the spring of 2007, when many people in the industry and in Washington were still pretending there was no problem with the economy or the housing markets, the National Urban League made public complaints about the unusually high number of minority borrowers receiving subprime mortgages. Last March, another civil rights group, the NAACP, accused Wells Fargo and HSBC of encouraging black borrowers to take out subprime loans despite their having the same qualifications as white borrowers who received lower rates.
Whatever the merits of the complaints – and many people in the industry bristle angrily over the suggestions of a racial element to the subprime boom – the fact remains that the new bank branch survey offers dismal publicity for an industry that is already whacked with an acute image problem. It also reinforces the notion that minority neighborhoods are prime targets for nonbank predatory lenders who offer potentially dangerous retail banking products to people who don't have easy access to licensed and certified financial professionals – including toxic mortgages.
When recovery begins to take root, the industry needs to seriously reconsider its strategy in dealing with the inner cities. This is not to say that financial service providers should set up branches and offices in areas that won't be profitable for them. On the other hand, these providers shouldn't write off entire communities under the belief that setting up shop in ritzier neighborhoods will automatically add up to big bucks – this recession has not been soft on many of the nation's affluent neighborhoods, so the ‘chase the money’ concept isn't fool-proof.
Yes, it takes time and energy to cultivate an economically enervated area. But the ultimate payoff is the positive transformation of neighborhoods, with opportunities to attract a new wave of customers – particularly on the home loan side. Clearly, a new strategy is required here.
What is your view? Feel free to e-mail me or leave your comments on this page – I am interested in hearing what the members of the industry think about this.
– Phil Hall, editor, [b][i]Secondary Marketing Executive[/i][/b].
[i] (Please address all comments regarding this opinion column to hallp@sme-online.com.)[/i]
