Minority Banks Struggle To Offer Loans

President Obama met with the nation's top bankers yesterday at the White House. The President urged the CEO's to bolster lending to consumers and small businesses to help jumpstart the economy. Largely absent from the meeting were community-based minority banks, which have struggled to stay afloat in recent years. Bill Cunningham, CEO of Creative Investment Research, discusses the historic role of minority lending and whether its role in the current economic landscape.

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MICHEL MARTIN, host:

I'm Michel Martin and this is TELL ME MORE from NPR News. Coming up, you're in the check out line. You've got an armful of stuff and the clerk says, wanna open a credit card today, and we'll give you 15 percent off? Well, new regulations could put a stop to that practice. We'll find out why later in the program.

But first, more on President Obama's meeting with the bankers. The president met with executives of America's top banks yesterday at the White House to talk about ways to encourage more lending and jump start the economy. Tensions between the White House and the financial sector have been growing in recent weeks over what the administration sees as a resistance from Wall Street to regulatory reform, a slowness in adjusting mortgages for distressed homeowners and an unwillingness to extend credit, particularly to small businesses. Here's what the president said right after the meeting.

President BARACK OBAMA: America's banks received extraordinary assistance from American taxpayers to rebuild their industry. And now that they're back on their feet, we expect an extraordinary commitment from them to help rebuild our economy.

MARTIN: But we wondered what all this means for financial institutions that focus primarily on minority communities. Have they gotten any of this extraordinary assistance the president talked about? Should they also be making an extraordinary commitment to helping to rebuild the economy?

To find out more about all this, we called William Cunningham. He is the chief executive officer at Creative Investment Research, which does research on women and minority-owned banks. It's also a governance advisor to CalPERS, that's the California State Government Pension Fund. He's here with me in our Washington, D.C. studio. Welcome. Thank you for coming.

Mr. WILLIAM CUNNINGHAM (CEO, Creative Investment Research): Good morning. Thank you for having me on.

MARTIN: We'll get into yesterday's meeting at the White House in a minute. But before we do, I wanted to talk about minority banking itself. On Sunday, the president spoke on the CBS program "60 Minutes," where he expressed some frustration with leaders of the banking sector. Here's a short clip.

(Soundbite of television show, "60 Minutes")

President OBAMA: I did not run for office to be helping out a bunch of, you know, fat cat bankers on Wall Street. You guys are drawing down 10, $20 million bonuses after America went through the worst economic year that it's gone through in decades and you guys caused the problem? Why do you think people might be a little frustrated?

MARTIN: What about minority and women-owned banks, are they among the guys and gals that the president was talking about? First of all, did they get any of the bailout money that the president talked about? How much? And how are they doing?

Mr. CUNNINGHAM: They did actually receive - several of the minority banks received significant increases in their capital base based on the TARP program. However, you know, at the beginning of 2008, actually at the end of 2008, there were 229 minority banks. Ten have failed so far. So there are 219 minority owned banks, which is a pretty significant percentage of the institutions that exist.

The ones that have survived have actually not done all of that well. The issue is that they're small. They're tiny institutions, relatively speaking. So they have a tough time under any circumstances. But given this market environment, they really have struggled to survive.

MARTIN: The president, part of the purpose of the meeting with the bankers yesterday was for the president to jawbone them to try to loosen up credit. What about the minority and women-owned banks that you are in touch with, are they still lending?

Mr. CUNNINGHAM: You know, no. The issue that they have is, again, one of size. But also, remember, minority institutions and especially African-American institutions are very conservative. They weren't necessarily doing a great amount of lending prior to the crisis and the crisis has done nothing to loosen the grip that they have on the money that they're sitting on. Now, there are a couple of minority institutions that are the exception to that rule.

Carver Federal Savings Bank, run by Deborah Wright in New York City, they're doing an excellent job. Harbor Bank in Baltimore. Aldwin(ph) MacDonald's bank, Liberty Bank and Trust in New Orleans is another institution that's doing a good job of lending in the minority and low-income communities. New Orleans is, of course, a special situation, so they face special challenges there. But relatively speaking, they've done very well.

But broadly speaking, overall, no, the minority banks have not been very innovative or very active in getting credit to the minority community.

MARTIN: Why then should we care, if I may put it so bluntly? What is the sort of social purpose in supporting or protecting or being concerned about these institutions if they're not part of the solution?

Mr. CUNNINGHAM: Well, they've made the claim over the years that because they are minority institutions, because of the historical legacy of discrimination in the financial marketplace, in many cases, especially the African-American institutions were the only place that an African-American could go. And I'm talking �30s, �40s, �50s - to get a home mortgage loan. And that is absolutely correct. If you look at the record of black savings and loans, specifically, they were very, very good at making home mortgage loans in the African-American community.

They face additional competition as non-minority institutions have come into their market sector and as people realize that there was money to be made in these minority communities. So, it also varies according to ethnic group. If you have a language barrier, as some of the Hispanic institutions do or Hispanic communities, the Asian communities, there's more of a rationale for having a specialized financial institution.

Now, the other issue is that, you know, if you look at the recent report released by the FDIC, 21 percent of African-American households do not have a banking relationship. That's a huge percentage. So the hope is, the promise is that these African-American institutions and minority institutions can go in and reduce that number from 21 percent down to 10 percent or so.

MARTIN: Finally, are these institutions looking for any particular relief from the government at this time? As we mentioned earlier, some of the bankers are -following the bankers meeting yesterday, Citigroup and Wells Fargo want an agreement to begin paying back their government loans. Now that reduces the government's leverage, but it also apparently frees up some capital.

There are, of course, a number of people who think the money should just go back into the Treasury to reduce the deficit. But do these minorities serving in minority-owned institutions want something else?

Mr. CUNNINGHAM: Not that I'm aware of. You know, what we've called for is for them to launch innovative lending programs, green lending tied to job creation programs. There is a program to create or finance cab medallions in certain urban areas, focused on black communities because, you know, the issue that black men - I'm a black man - have in terms of getting a cab. So one of the approaches would be to create new types of institutions, you know, new type of transportation networks. So, there is the opportunity to do some innovative type of lending. But we haven't seen that in reality yet.

MARTIN: William Cunningham is chief executive officer at Creative Investment Research. It's a minority-owned firm that specializes in research on women and minority-owned banks. And he was kind enough to join us in our Washington D.C. studio. Thank you so much.

Mr. CUNNINGHAM: Thank you very much.

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