Small Banks Made a $550 Million-Plus Difference in Distressed Neighborhoods

One is focusing on homeownership to address the racial wealth gap.

(AP Photo/Mark Lennihan)

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Last week, the U.S. Treasury recognized the efforts of 102 (mostly small) banks making loans and investments in some of the nation’s most economically distressed areas.

As a group, the banks provided $550.8 million in loans to 3,181 businesses and $37 million in loans to 2,193 residents in target communities in 2015. The target communities are census tracts where at least 30 percent of residents live below the federal poverty line and the unemployment rate is at least 1.5 times the national rate.

Out of the 102 banks, 97 had less than $1.2 billion in assets, meaning they are federally classified as intermediate or small banks. Of those, 61 were classified as small banks, with less than $300 million in assets. For context, the average bank size is around $3.3 billion in assets.

The 102 banks are recipients of the Bank Enterprise Awards (BEA) program, administered by the Community Development Financial Institution (CDFI) Fund, an arm of the U.S. Treasury that supports the community development finance sector. The program provides modest financial incentives for federally insured banks to support access to capital and financial services in distressed communities. In addition to loans and investments for people and businesses, the program awards banks for providing specialized loan products, checking or savings accounts, or financial counseling tailored to the needs of residents. Finally, it also recognizes banks for making grants, loans, investments or technical support to federally certified CDFIs.

This year, the BEA program awarded a total of $18.6 million to the 102 banks, in amounts from as little as $12,000 up to a maximum of $227,282.

While that’s not a ton of money, even for a small bank, the CDFI Fund calculates awards for each bank based on how much it has increased any of the above activities from one time period to the next. In this case, the CDFI Fund compared each bank’s activities in 2015 to 2014. Collectively, comparing 2015 to 2014, the 102 banks increased lending to businesses and residents of distressed communities by $308.2 million, increased loans and other support to CDFIs by $49.8 million, and increased the value of financial services provided to target community residents by $3.5 million.

Nineteen BEA program recipients are also minority-depository institutions, meaning they are owned by members of a racial minority or their boards are primarily made up of members of a racial minority. Ten of those are black-owned or black-led banks: Broadway Federal Bank in Los Angeles; Carver Federal Savings Bank in Harlem, NYC; Carver State Bank in Savannah, Georgia; Citizens Trust Bank in Atlanta; Commonwealth National Bank in Mobile, Alabama; Harbor Bank of Maryland in Baltimore; Liberty Bank & Trust in New Orleans; Mechanics & Farmers Bank in Durham, North Carolina; Metro Bank in Louisville; and Boston-based OneUnited Bank.

Since 2009, BEA recipients have been required to use award dollars to further support BEA-eligible activities. OneUnited Bank, currently the country’s largest black-owned bank, plans to use its award dollars to provide financial support for community-based partner organizations that are partnering with the bank to support first-time homeownership among black households in Boston, Los Angeles and Miami, where the bank has branch locations.

In Miami, for example, OneUnited works with the Haitian-American Community Development Corporation (HACDC) to support homeownership. Miami’s real estate market is attracting buyers from all over the world, and some are competing directly against these same first-time homebuyers, as HACDC Executive Director Samuel Diller told me last year. Foreign buyers often deal in all-cash transactions, no bank needed.

“One of the challenges we have in Miami is there are a lot of cash buyers that are pushing up prices and competing with first time homebuyers,” says Teri Williams, COO and president of OneUnited.

Williams was in Miami over the weekend to help run a Saturday morning homeownership workshop in Liberty City, a neighborhood that is 94 percent black, with a median household income of $18,809. The BEA award comes at a key moment for OneUnited, says Williams, as the bank aims to ramp up its first-time homeownership lending as a way to address the racial wealth gap. Median net worth for white non-Hispanic households in the U.S. is $132,483, compared with $9,211 for black households, according to the U.S. Census Bureau’s latest figures.

Williams says they are focusing on doing outreach based on a legacy view of wealth, rather than a more typical focus on navigating the homeownership process and paperwork. Hopefully, it will help generate more demand for homeownership among a population that has been excluded from it for a generation or more.

“It truly is something that has to be triggered. A lot of us, our parents didn’t own homes,” says Williams.

Funding limits keep the program from doing more. Although the CDFI Fund caps award amounts at a certain level each year, it calculates a full award amount that each bank is eligible to receive based on how much it increases its BEA-eligible activity. If there was no cap, the BEA program would have awarded more than $271 million from 2012 to 2014; instead, it only awarded $53 million.

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Oscar is Next City's senior economic justice 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.

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Tags: real estateincome inequalityracecdfi fund

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