At the heart of the fight for banks to benefit their communities
At a time when the big banks getting easy approval for profitable mergers, say some California community groups, not so fast. Dozens of them are seeking to block US Bank’s bid to acquire Union Bank unless the former earmarks $90 billion for charitable loans and donations to low-income areas and communities of color of State.
The $8 billion merger, announced Sept. 21, 2021, would create California’s fifth-largest bank, a $680 billion mega-corporation that would compete with giants like Bank of America and JPMorgan Chase. The Biden administration’s response to the merger will be a test of whether the administration intends to carefully consider bank consolidation rather than rubber-stamp it.
In a July 2021 executive order, President Biden called for a more critical approach to merger approvals, noting that “excessive consolidation increases costs for consumers, limits credit for small businesses, and hurts low-income communities.” “.
The $8 billion merger would create California’s fifth-largest bank, a $680 billion mega-corporation that would compete with giants like Bank of America and JPMorgan Chase.
The merger would be a win for bank executives, but Paulina Gonzalez-Brito, executive director of the Oakland-based California Reinvestment Coalition, made up of local housing advocates and nonprofit development groups, is leading the opposition to the merger. ‘acquisition. According to Gonzalez-Brito, low-income communities have a lot to lose from this deal.
So far, US Bank and Union Bank have each provided financing for affordable housing. Each lends to individuals and small businesses, donates to local charities and community lenders.
“Now the danger is that we will disappear. You end up with less than you started with and communities get less,” Gonzalez-Brito noted.
Much of the $90 billion package proposed by the CRC would go toward one of the state’s greatest needs: housing. The California Housing Partnership reports that 1.2 million low-income renters lack safe and affordable housing.
The California Reinvestment Coalition is calling for public merger hearings to be held in Los Angeles, Fresno and San Francisco. Among CRC’s proposals: special programs to boost home ownership among African Americans and small Native American businesses. Additionally, they are asking for smaller-scale opportunities for tenants like Maria Montes de Oca to own and manage their own buildings.
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In Oakland, just before Christmas 2021, Montes de Oca and a handful of neighbors were celebrating. Its landlord, who she said had doubled the rent for the past two years while refusing to eradicate mold or fix backed-up plumbing, had tentatively agreed to sell her building to the Oakland Community Land Trust.
“Now I can relax,” Montes de Oca said, as after a two-year rent strike, the land trust promises to keep the building affordable and make repairs, i.e. to say if the case passes.
Oakland Community Land Trust executive director Steve King said he plans to reconcile funding from the City of Oakland and nonprofit lenders to purchase the building from Montes de Oca.
US Bank argues that its acquisition of Union Bank is in itself a benefit to the communities where it operates and promises to provide affordable and increased financial access.
CRC says the $90 billion benefits package would ensure low- and moderate-income communities of color get housing and small business financing opportunities and mitigate the potential damage of a consolidation.
But such agreements are not legally binding and enforcement can be difficult. “It’s usually a hard thing to do,” said Mike Calhoun, president of the Washington, DC-based Center for Responsible Lending. “They will say they will make X dollars in loans. It is often unclear whether this is beyond what they have done. How do you count eligible loans? »
In New York, Kathryn Franco, president of the Buffalo Niagara Reinvestment Coalition, said that to help enforce agreements, her group tries to make sure the public is part of the process by “being really transparent with the information we have. have, [and] let community members know.
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The American bank, for its part, argues that its acquisition of Union Bank is in itself a benefit to the communities where it operates, and promises in its October 2021 merger filing to provide affordable and increased financial access, to “address systemic racism” and to support “sustainable environmental practices”. It is also noted in the merger application that both banks passed their latest Community Reinvestment Act exams with an “Outstanding” rating.
Under the Community Reinvestment Act, which aims to eliminate lending discrimination by banks, regulators periodically review each bank’s lending and community investment record, assigning ratings ranging from unsatisfactory to outstanding. But grade inflation is rampant, Gonzalez-Brito said, with 96% of banks passing their exams.
In 2019, Senator Elizabeth Warren forced Federal Reserve Chairman Jerome Powell to publicly admit that since 2006 the Fed had approved 3,813 mergers and denied none.
Banks often agree to community benefit agreements in order to weed out opposition and grease the shoes for mergers to proceed. The CRC secured 12 such deals by calling on regulators to deny bank mergers and acquisitions based on poor community reinvestment performance. But a $90 billion commitment from the U.S. bank would be the biggest in California yet.
Yet the whole process, from merger announcement to concessions made to community groups to eventual consolidation, is more akin to Kabuki theater than transparent regulatory scrutiny, because bank mergers – at least over the past 15 years – have been virtually guaranteed approval.
In 2019, Sen. Elizabeth Warren (D-Mass.) removed all doubt by forcing Federal Reserve Chairman Jerome Powell to publicly admit that since 2006 the Fed had approved 3,813 mergers and denied none.
But that can change. After President Biden issued his executive order last July, the DOJ and FDIC signaled that they would take a closer look at their merger approval rules.
California Congresswoman Maxine Waters (D-Los Angeles), who chairs the House Financial Services Committee, called on regulators to rein in the US Bank-Union Bank deal and other pending mergers that would create banks with more $100 billion in assets. until federal agencies draft new regulations.
Echoing the Reinvestment Coalition’s call for public merger hearings, Waters wrote in a December 2021 letter to federal regulators that evidence “has shown that bank consolidation is hurting small business lending, financial inclusion, financial stability and the rights of workers in financial institutions”.
In 2020, US Bank refused only 24% of loan applications from white areas, compared to 30% of applicants from predominantly African-American neighborhoods.
In its opposition to the merger, the CRC drew attention to the US bank’s branch closures in low-income neighborhoods and communities of color. The group cited research by the National Community Reinvestment Coalition which showed that US Bank closed a quarter of its 643 California branches between 2017 and 2020. The CRC fears consolidation could lead to additional closures, which would further incentivize people turning to high-cost check cashing and payday loans.
The bank’s lending record also shows that racial disparities persist for borrowers in California, despite its better CRA score.
In 2020, US Bank declined just 24% of loan applications from white areas, compared to 30% of applicants from predominantly African American neighborhoods and nearly 38% from predominantly Latino communities.
The data, derived from banking disclosures to federal regulators, also shows that in 2020, about 38% of Californians lived in majority-white communities, with roughly the same percentage in majority-Latino neighborhoods. But 56% of the bank’s loan applicants were white and only 16.1% were Latino.
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American bank spokesperson Jeff Shelman argued in an email to Capital & Main that the bank’s “loan underwriting and approval processes have been carefully designed with fair lending requirements in mind.” He pointed to $37 million in charitable donations and $1.3 billion in community development investments, like a newly built 98-unit apartment building in San Bernardino County or a motel conversion to affordable housing in Anaheim. . Shelman didn’t say the bank wouldn’t be closing branches, but he said, “We won’t leave any community that Union Bank currently serves and we’re committed to keeping all front-line branch employees.”
But the CRC insists that the banks put their commitments in writing. Gonzalez-Brito said Bank of America officials had held at least two “listening sessions” with his group, but so far no real negotiations.
“I’m surprised how slowly they’re moving,” she says, adding that the community groups she works with are getting nervous.
Now, with more critical merger reviews on the horizon, groups like CRC and New York State’s Buffalo Niagara Reinvestment Coalition may have greater leverage, and banks may be willing to spend more. for the communities in order to consolidate.
“I hope there will be a real change in the way banks approach mergers,” said Kathryn Franco of the Buffalo coalition.
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