By Harry C. Alford
Capital Access has become more elusive than ever. Why? Because of a kneejerk reaction in 2010 by Congress responding to the subprime mortgage crisis by passing the colossal mass of regulations known as the Dodd–Frank bill.
- First, we should never trust legislation that is written by two retiring congresspersons. Senator Chris Dodd (D-Conn.) and Congressman Barney Frank (D-Mass.), both of whom have since retired, wrote the Wall Street Reform and Consumer Protection Act, a bill that causes a lot of paperwork and costs for our banks.
Thus, bankers do not feel it is cost effective to do small business lending. When White-owned businesses have trouble getting loans, Black and Hispanic firms find it practically impossible. What banks need is an incentive.
Historically, the Federal Reserve has been here to protect banks and make conditions good for our stock exchanges. It has not been here to provide lending to small business. It never has since its inception in 1913 and never will. We should not waste our time pleading to the Fed. The more Congress tries to make things better for us, the worse off we become.
In response to the Civil Rights Act of 1964, Congress enacted Regulation B of the Banking Act, also known as the Equal Credit Opportunity Act. It prohibits banks from tracking by number and volume the race and credit applicants. They thought this would eliminate discrimination but it does the reverse. Because of Regulation B we have no idea how many loans each bank is making to Blacks, Hispanics, Asians, women, etc., we can’t determine who the good banks are and who the bad ones are. Yet, they can put a removable post it on a banking application or use a code system to note the race of the applicant. Thus, discrimination does exist and we have no metrics to detect it.
The Small Business Administration is exempt from Regulation B and does count its guaranteed lending by race and gender. There was a time that the SBA was continuously improving in the amount of lending to Black-owned firms but that has gone away. They are not generating loans any better than the big banks. Blame this on the Dodd – Frank bill and a demoralized labor force at the SBA. They have no motivation to help local communities any more. They even try to hide its activity from the press even though the information is public. The transparency has become cryptic activity.
Decades ago Congress codified the Community Reinvestment Act (CRA). Lending in under-served communities is a key part of this legislation. Banks were forced to invest and lend in our communities or receive poor grades from the Comptroller of the Currency, which could become a costly situation to a bank. So, what did our banking industry do? They started the gentrification of our communities.
An example is the Shaw area of Washington, D.C. You drive by Howard University and you see a startling number of Whites living in the neighborhood. Blacks who were receiving Section 8 housing assistance were pushed out to Prince Georges County, Maryland and other areas by the D.C. Housing Authority per directions of HUD. The vacancies left by them were filled by Whites who could get CRA low-interest loans. This gentrification has happened throughout urban America and most of our local leaders could not figure it out. CRA has been more of an economic hindrance to us instead of a friend.
Similar activity has happened as a result of the Federal Empowerment Zone program and the Enterprise Zone program that has come to selected cities. Usually, there is a hospital and a major university involved in economically stimulating a declared community. When they are done, the hospital and university have grown immensely in property holdings and new found revenues. The underserved Blacks have left these communities. Their location has changed but their poverty remains.
How do we get banks to actually make a positive change in its lending habits?
The president of the United States can do it with one executive order. He simply can order all federal deposits to sit in banks that show significant lending to all forms of small business, including Black-owned businesses. If banks in Columbus, Ga. don’t do the right thing, Ft. Benning Army Base will put its payroll and other cash in a bank that will. All military facilities, federal buildings such as Social Security, hospitals, court houses, and all agencies shall bank at only positive rated banks.
There is no bank president or board of directors going to mess up via discrimination and lose all of that free money. We are talking trillions of dollars (that is a “T”). Good governors and mayors can do the same. Former Maryland Gov. Bob Ehrlich and Lt. Governor Michael Steele did that with no problems or resistance from the local banking industry. Wouldn’t this make a great project and a legacy builder for participating elected officials?