Showing posts with label CRA. Show all posts
Showing posts with label CRA. Show all posts

Thursday, March 26, 2020

Nationalize the Banks

According to the Financial Times, megabank Wells Fargo & Co “has asked the U.S. Federal Reserve to remove an asset cap introduced during its accounts scandal in order to allow it to support businesses and customers hit by the coronavirus economic fallout..”

The growth cap was imposed after the bank “acknowledged that it improperly foreclosed on 545 distressed homeowners after they asked for help with their mortgages, created 3.5 million fake accounts, charged 570,000 customers for auto insurance they did not need, and illegally repossessed vehicles from hundreds of service members.” Former bank employees state that Wells "targeted black churches” and neighborhoods by offering escalating-interest mortgages, which some loan officers called “ghetto loans.”

This week, the bank demanded that call center workers come to the office despite coronavirus, but agreed to pay "all of its domestic full-time employees who make less than $100,000 a year.. a pre-tax payment of $600 and part-time employees.. a $300 bonus."

Wells suggested the Fed remove the $1.95 trillion asset cap, “which has curbed its growth and profitability since it was imposed in 2018..” In 2019, Wells Fargo reported net income of $19.5 billion.

This request must be viewed in the context of the current COVID crisis and banking industry profits. JPMorgan Chase, the country’s largest bank, reported record profits of $36.4 billion in 2019, the highest annual earnings any U.S. bank has ever reported. Citigroup announced its best results since the 2008 financial crisis, reporting $19.4 billion in profits for 2019.

Wells Fargo’s request exposes the greed and lack of public concern that is the cause of the bad banking behavior we have seen in recent years. These are simply greedy, unpatriotic institutions whose behavior now, in the midst of this crisis, borders on the psychopathic. (A Former Wells Fargo CEO wants people to go back to work and 'see what happens.' He said 'Some may even die, I don't know.' This lack of empathy is the textbook definition of a psychopath.)

The country is in the beginning stage of the most serious social and economic crisis it has ever faced. To ensure the country does not fall into depression, the federal government will need to make deposits directly into roughly 300 million banking accounts. It will have to send direct payments via new fintech platforms, like Venmo and PayPal, to reach the broadest number of citizens. Credit unions and check cashing firms will also have to be included, quickly, while avoiding double counting, and making sure that only eligible US citizens receive money.

Mortgage and loan terms will also have to be revised. We know financial institutions can do this, since it’s what they did in the years leading up to the financial crisis, when loan terms were revised in favor of the banks, in many cases without letting borrowers know. (In 2001, we helped create one of the first wide scale home mortgage loan modification projects in the United States. The project helped families victimized by predatory lending practices. See: ) Now, the task is to reset loan terms in favor of borrowers. It is uncertain that banks can do this in a fair, unbiased manner. This is why nationalization is needed.

While privately-owned banks place “short-term profits for their shareholders as their highest priority” they are required to “maintain stability and public confidence in the nation's financial system.” Megabanks must be part of the solution, but, if a bank is primarily worried about profitability before the public interest in THIS environment, they will only make things worse.

The solution is to have the government, via the Fed, in the public interest, take over the banks.

Tuesday, March 13, 2018

Two suburban banks test new ways to court urban residents

John Reosti, The American Banker Newspaper. Published March 07 2018, 3:10pm EST

Howard Bancorp in Maryland and Bryn Mawr Bank Corp. in Pennsylvania, both banks with suburban roots, have marketing challenges on their hands after recent acquisitions in more urban areas. Their goals — to raise their profiles in new, diverse neighborhoods — are identical, but their approaches are very different.
The $2.1 billion-asset Howard is so committed to Baltimore that it moved its headquarters downtown from suburban Ellicott City after completing the purchase of First Mariner Bank on March 1. Now, the merged company plans to increase its philanthropy budget and focus it on projects that will benefit what CEO Mary Ann Scully termed “stressed” communities; job training will be a top priority.
Bryn Mawr deepened its presence in Philadelphia after acquiring Royal Bank American in December. The resulting $4.5 billion-asset company has established a multicultural advisory board made up of a dozen prominent African-American, Hispanic and Asian professionals in the Philadelphia area to invite input on community needs.
The banks' moves are notable at a time of rethinking of federal policy toward banking and disadvantaged populations. Regulators are considering changes that could effectively “dial back” enforcement of the Community Reinvestment Act, according to recent remarks by Comptroller of the Currency Joseph Otting. The discussions are part of an age-old debate pitting those who say financial companies need to be prodded to serve less affluent markets, versus others who feel CRA rules are outdated for a digital age and stifle innovation.
In this environment, creative initiatives like the ones Howard and Bryn Mawr are pursuing will likely take on greater importance and command more attention, said William Michael Cunningham, the CEO at Creative Investment Research and a frequent commentator on minority banking issues.
“It’s where we see the financial marketplace going” in an era of lighter regulation, Cunningham said.
% of urban branches out of total at Howard Bancorp, Bryn Mawr Bank Corp.
To be sure, each bank added less than half a dozen urban branches. Nevertheless, the additions were enough to more than double their urban mix (see chart above) and provide them exposure among large groups of city residents.
Bryn Mawr’s advisory board is the brainchild of its newly hired vice president of multicultural banking, Miguel Alban. The panel's job will be to open lines of communications with minority communities, Senior Vice President Tina S. McDonald said in an interview.
“We want to be more all-encompassing and understand the communities we serve,” McDonald said. “We’re trying to listen to all our constituents in a more meaningful way.”
Bryn Mawr is counting on the advisory board to help it operate “with greater cultural awareness and sensitivity,” Joe Keefer, executive vice president and chief lending officer at Bryn Mawr Trust, Bryn Mawr’s bank subsidiary, said in a press release last week that announced the board's formation. “It’s about doing our best to serve the underserved in our communities throughout the Philadelphia region."
For banks expanding into urban communities, the idea of a multicultural advisory board “makes sense,” Cunningham said, adding that he applauds efforts by institutions to “move outside of their comfort zone” to serve the needs of minority customers.
“Nondiscriminatory provision of credit creates shareholder value and social return,” Cunningham said.
Howard, too, is talking to “potential community partners,” Scully said, but its efforts at dialogue are aimed at refining and advancing the plan already charted by Scully and President Rob Kunisch. Both have spent most of their careers in Baltimore and drew on their wide networks of connections while formulating the merged bank’s program.
“Candidly, we’re pretty well connected,” Scully said. “We know a lot of people in the community, and we’re always talking to new people, as well.”
While the greater Baltimore market includes tens of thousands of highly educated workers possessing world-class job skills, thanks in no small part to the presence of Johns Hopkins University and the University of Maryland, it is also home to pockets of “systemic unemployment,” Scully said. She wants to do something about it.
Job training “is an area we feel we can be impactful,” Scully said. “We’re hoping we can chip away” at the problem. “Developing people is really the most important thing you can do.”
Howard’s approach may appear top-down, but the years of in-market experience Scully and Kunisch bring to the table can’t be discounted, Cunningham said.
Scully declined to disclose how much Howard plans to spend, but the combined company’s philanthropy budget will be larger than the sum of Howard and First Mariner’s pre-merger spending, she said.“They should have pretty good ties,” he said. “They know who’s who and what’s what.”
“Philanthropy has always been an important part of the value-add we bring as a bank in the community,” Scully said.

Wednesday, October 6, 2010

Racial predatory loans fueled U.S. housing crisis: study

(From the Firm Grasp of the Obvious Department at the American Sociological Review as reported by Reuters....)

"Predatory lending aimed at racially segregated minority neighborhoods led to mass foreclosures that fueled the U.S. housing crisis, according to a new study published in the American Sociological Review.

Predatory lending typically refers to loans that carry unreasonable fees, interest rates and payment requirements.

Poorer minority areas became a focus of these practices in the 1990s with the growth of mortgage-backed securities, which enabled lenders to pool low- and high-risk loans to sell on the secondary market, Professor Douglas Massey of the Woodrow Wilson School of Public and International Affairs at Princeton University and PhD candidate Jacob Rugh, said in their study.

The financial institutions likely to be found in minority areas tended to be predatory -- pawn shops, payday lenders and check cashing services that 'charge high fees and usurious rates of interest,' they said in the study.

'By definition, segregation creates minority dominant neighborhoods, which, given the legacy of redlining and institutional discrimination, continue to be underserved by mainstream financial institutions,' the study says.

Redlining is the practice of denying or increasing the cost of services, such as banking and insurance, to residents in specific areas, often based on race.

The U.S. economy is still struggling with the effects of its longest recession since the 1930s, which was triggered in large part by the housing crisis, which was in part triggered by the crash of the subprime loan market.

Subprime lending refers to loans made to consumers with poor credit and others considered higher risk. They tend to have a higher interest rate than traditional loans.

The study, which used data from the 100 largest U.S. metropolitan areas, found that living in a predominantly African-American area, and to a lesser extent Hispanic area, were 'powerful predictors of foreclosures' in the nation.

Even African-Americans with similar credit profiles and down-payment ratios to white borrowers were more likely to receive subprime loans, according to the study.

'As a result, from 1993 to 2000, the share of subprime mortgages going to households in minority neighborhoods rose from 2 to 18 percent,' Massey and Rugh said.

They said the U.S. Civil Rights Act should be amended to create mechanisms that would uncover discrimination and penalize those who discriminated against minority borrowers.

The study is published in the October issue of the journal."

See: and for our take on the matter.

Wednesday, July 21, 2010

Creative Investment Research, Inc. testifies at the Joint Public Hearing on CRA

Sponsored by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Office of Thrift Supervision (The Agencies), the Joint Public Hearing on the Community Reinvestment Act Regulation was held in Arlington Virginia on July 19, 2010. We provided testimony for the hearings.

Congress passed the Community Reinvestment Act (CRA) in 1977 “to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low and moderate income neighborhoods, consistent with safe and sound operations.”

Our testimony follows a series of warnings we have issued since 1998:

- In an October 1998 brief filed with the Court of Appeals for the District of Columbia Circuit, we objected to the Citigroup/Travelers merger. We cited evidence that growing financial market malfeasance greatly exacerbated risks in financial markets, reducing the safety and soundness of large financial institutions. We went on to note that: “The nature of financial market activities is such that significant dislocations can and do occur quickly, with great force. These dislocations strike across institutional lines. That is, they affect both banks and securities firms. The financial institution regulatory structure is not in place to effectively evaluate these risks, however. Given this, the public is at risk.”

- On June 15, 2000, we testified before the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises (GSE’s) of the US Congress. We suggested the GSE’s (Fannie Mae and Freddie Mac) be subject to a thorough “Social Audit.” Had they been subject to this audit, certain flaws in their operation, including ethical shortcomings, may have been revealed earlier and in a better market in which to make corrections.

- On December 22, 2003, we warned regulators that statistical models created by the firm using the Fully Adjusted Return ®Methodology signaled the probability of system-wide economic and market failure.

- On Monday, April 11, 2005, we testified before Judge William H. Pauley III in the U.S. District Court for the Southern District of New York on behalf of investors at a fairness hearing regarding the $1.4 billion dollar Global Research Analyst Settlement.

- On February 6, 2006, we warned regulators that statistical models using the Fully Adjusted Return® Methodology confirmed that system-wide economic and market failure was a growing possibility. See page 2:

- On June 18, 2010, we released a comment letter sent to Mr. Phil Angelides, Chairman, Financial Crisis Inquiry Commission, outlining our Transaction Cost Theory of the Financial Crisis. See: ...

Our CRA testimony focuses on:

- The best approaches to evaluating the geographic scope of depository institution lending, investment and/or deposit-taking activities under CRA. We seek open and market based CRA performance evaluation standards.

- We suggest the Agencies conduct a “credit needs” based review, subject to financial institution lending and service capabilities. In other words, we suggest they look at total credit needs in areas served by large and small institutions, calculate the potential impact that the institution has in meeting those needs, calculate the actual impact (number and dollar amount of loans provided), and use this metric as part of the CRA review process.

- We suggest the agencies revise CRA regulations to require that bank examiners routinely consider activities by affiliates.

- We suggest that the Agencies focus on opportunities to encourage "green" community development loans, "green" investments and "green" services to support projects that have a significant impact on a neighborhood.

- We suggest that the agencies’ evaluations of evidence of discriminatory or other illegal credit practices as outlined in the CRA rules are inadequate.

- We suggest the creation of a single online access point for CRA ratings, HMDA and small business data, accessible online, covering all regulated financial institutions and all affiliates, across regulatory agencies (OCC, OTS, FDIC, FRB, SEC, CFTC, etc.). We believe this would streamline CRA disclosures and performance evaluation reports, simplify compliance, improve consistency and enhance clarity.

- Finally, we suggest the agencies consider using the social networking sites (Facebook, Linked-In, etc) to collect public comments on the CRA performance of banks.

Tuesday, April 1, 2008

Treasury Announces Intention to Implement Portions of Overhaul Via Executive Order

On a conference call with Assistant Secretary for Financial Institutions David Nason yesterday, Treasury Department officials announced that they will implement many parts of their plan to overhaul the nation's financial regulatory structure by executive order. This includes "streamlining the approval process for securities that contributed to the crisis now roiling Wall Street."

According to the Washington Post, "The Treasury's initiatives seek to sweep away the current patchwork of regulation over the coming decade in favor of three more powerful agencies to oversee banking, market stability, and consumer and investor protection."

Treasury officials also acknowledged that the plan is "silent on CRA," or the Community Reinvestment Act.

As Paul Krugman noted,

"Traditional, deposit-taking banks have been regulated since the 1930s, because the experience of the Great Depression showed how bank failures can threaten the whole economy. Supposedly, however, 'non-depository' institutions like Bear (Stearns) didn’t have to be regulated, because 'market discipline' would ensure that they were run responsibly.

When push came to shove, however, the Federal Reserve didn’t dare let market discipline run its course. Instead, it rushed to Bear’s rescue, risking billions of taxpayer dollars, because it feared that the collapse of a major financial institution would endanger the financial system as a whole.

And if financial players like Bear are going to receive the kind of rescue previously limited to deposit-taking banks, the implication seems obvious: they should be regulated like banks, too."

We agree that "if financial players like Bear are going to receive the kind of rescue previously limited to deposit-taking banks,they should be regulated like banks."

This includes CRA.