Only a year ago, crack-cocaine users were climbing the stairs at
the elegant old brownstone on Bainbridge Street in Brooklyn.
But now Pam Flaherty, a senior officer at Citigroup, is admiring
the African-inspired furniture and parquet floors.
"Isn't it beautiful," she enthuses. "It's hard to believe it
wasn't that long ago that this place was infested with cockroaches,"
says Ms. Flaherty, whose bank made the loan that helped revitalize
the building whose renovated rooms are being turned into affordable
housing for families.
A few years ago, it would have been unusual to see pinstriped
bankers making housing loans in places that once had a reputation
for crime, drugs, and violence.
But now banks are actually seeking out minority businesses,
funding affordable-housing projects and offering lines of credit for
everything from day-care centers to public libraries. The MBA set is
signing contracts with black church leaders and minority
entrepreneurs to become partners in redeveloping large areas of
"It's a growing field - there are more players looking to do
deals," says Flaherty.
Behind the lending are commitments bankers have made to be in
compliance with the Community Reinvestment Act (CRA), legislation
that requires banks to invest some of their assets in low- and
moderate-income communities. Since it was established in 1977, some
$1 trillion, equivalent to the annual GDP of Brazil, has been
committed to CRA projects.
Sudden influx of money
A significant amount of the money - 10 times the annual budget of
the US Housing and Urban Development Department - has been promised
in the past two years alone, in large part because of the wave of
bank mergers. That's the case with Citigroup, which made a 10-year
commitment of $115 billion in April 1998 immediately after it merged
with Travelers. "A lot of people felt Citibank would disappear
forever and our interest in doing community work would disappear,"
After its merger with Nationsbank, Bank of America Corp. made an
even larger 10-year commitment - $350 billion. It has to average $14
million per hour in loans to meet that goal. On May 11, it plans to
hold a press conference in Washington to show the audited results of
its first year. "We are at a minimum on target," says Cathy Bessant,
president of Bank of America Corp.'s Community Development Banking.
Critics call the large commitments a form of pay-off. "The
numbers get larger and larger: They were intended to preempt
criticism of the mergers," says Sarah Ludwig of the Neighborhood
Economic Development Advocacy Project.
Despite the big numbers, she says, "I still see communities
starved for credit."
Others criticize the CRA from the opposite side - they see the
requirements as too burdensome for business. Sen. Richard Shelby (R)
of Alabama, in fact, wants the whole requirement repealed.
"It's a burden, it's not needed, it runs up the cost of doing
business," says Senator Shelby, who tried unsuccessfully to get
legislation through Congress that would exempt small banks with less
than $100 million in assets from the law. "It's just allowed a bunch
of groups to hijack banks."
But many grass-roots organizations believe dramatic change is
taking place in urban America. Benson Roberts, of the Local
Initiatives Support Corporation (LISC), says loans that were not
available a few years ago are now offered.
"We've seen single-mother households become homeowners in the
last two to three years," he says. "There are loan products
available with down-payment flexibility and terms that simply did
not exist a few years ago."
US Treasury numbers quantify some of the changes. Between 1993
and 1998, home loans to low- and moderate-income people grew by 64
percent, compared with 42 percent for middle-income and 37 percent
for upper-income borrowers. …