In a typical year, around 300 bank mergers take place. The vast majority of them are between smaller banks, the banks with names you never remember, and they almost never make front-page news. They merge for various reasons — to improve their bottom lines, or to access new deposits so they can provide more loans. Other than the fact that mergers are a major activity of the financial system that probably handles your money, why should you care?
Because thanks to the Community Reinvestment Act (CRA) of 1977 (which also outlawed redlining), every bank merger is a crucial moment to hold banks accountable for meeting the needs of everyone in the communities where they do business.
“That’s when you have a real moment of leverage,” says Jaime Weisberg, senior campaign analyst at the Association of Neighborhood and Housing Development (ANHD), which represents around 100 community development and neighborhood-based not-for-profit affordable housing developers in New York City.
One of those moments came recently, when New York Community Bank (NYCB) reached an agreement to acquire Astoria Bank. During the comment period that regulators typically have before approving mergers, ANHD filed a letter stating its opposition to the deal absent a “community reinvestment plan” — essentially a community benefits agreement.
In the merger approval process, regulators are required to consider each bank’s CRA standing, which comes mostly from its most recent CRA examination (every three years for national banks, longer cycles for smaller banks depending on performance). There’s a four-tiered rating system: outstanding, satisfactory, needs to improve and substantial noncompliance. One problem right now: Despite clear lack of access to credit in many communities, 98 percent of banks currently have at least a satisfactory CRA rating. (NYCB currently has a satisfactory rating. Astoria Bank is rated outstanding.) The CRA has lost some of its teeth. But the law also gives local groups the opportunity to make more specific demands attached to each merger, which is what ANHD did in demanding a community reinvestment plan.
Usually, if an objection is filed, regulators require banks to respond somehow to the objection. In this case, New York Community Bank didn’t wait for such a request. They went straight to ANHD.
“We were impressed that the bank came to the table willingly,” Weisberg says. There were several meetings and a lot of phone conversations, she recalls.
The resulting community reinvestment plan focuses mostly on NYCB’s lending for multifamily housing. Both NYCB and Astoria Bank are already large players in that market, so the issue wasn’t doing more of that kind of lending, but being more responsible about it. The plan sets up regular lines of communication among the bank, advocacy groups and tenant associations, and requires the bank to consider data such as the Building Indicators Project that identifies properties where residents may soon be displaced by foreclosure or structural danger. The goal is to weed out landlords that routinely harass or neglect low- and moderate-income residents, often driving them out of rent-stabilized apartments, so they can bring apartments up to market rate or sell them to a larger developer.
“There’s always a set of bad actors out there,” Weisberg says. “It’s like a game of whack-a-mole with these guys.”
“I think it’s one of the best CRA agreements that has come out in the past five to 10 years,” says Chris Kui, executive director of Asian Americans for Equality (AAFE), one of ANHD’s member organizations. Kui was part of the community reinvestment plan negotiations, representing AAFE.
Since 1986, AAFE has developed over 700 units of affordable housing around NYC, including the first affordable housing development in NYC to use low-income housing tax credits. But AAFE is much more than a housing organization. In the 1990s, AAFE established an economic development arm, the Renaissance Economic Development Corporation (EDC). Renaissance EDC has provided $28.5 million in affordable loans to 750 small businesses. They’re routinely a top 10 SBA microlender. So Kui couldn’t help but bring up small business lending as part of the NYCB negotiations.
“NYCB didn’t have a big focus on small business lending, and at the same time we’ve seen a pullback of small business lending from bigger banks and banks in general, so we raised that question with them,” Kui says.
When the bank said it didn’t quite have the infrastructure to do more small business lending, Kui suggested partnering with a local CDFI (community development financial institution) like Renaissance EDC.
“As a result of dialog and discussion, we potentially have a program for them to work with a CDFI on small business lending,” Kui says. Specifically, a commitment to invest $4 million in a local CDFI (while also maintaining their existing small business lending and banking business). Regulators still have to give final approval on the plan.
“This organizing effort is bringing back the effectiveness of the CRA. It’s a model,” Kui adds.
There are a trillion dollars in deposits at bank branches in NYC. The CRA gives local advocates, wherever they are, a platform to help more deposit dollars benefit the communities where they are held, and see that they are handled with greater responsibility and equity in mind.
The Equity Factor is made possible with the support of the Surdna Foundation.
Oscar is Next City's senior economics correspondent. He previously served as Next City’s editor from 2018-2019, and was a Next City Equitable Cities Fellow from 2015-2016. Since 2011, Oscar has covered community development finance, community banking, impact investing, economic development, housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha, and Fast Company.