It’s Good Business to Give Back : Bank of America’s $5 billion in loans to struggling communities makes sense
Maybe, just maybe, the American dream is not dead for the urban poor in California and Massachusetts. Hard work may still mean a chance to own a home or business, now that two major banks have committed billions of dollars in loan programs to help minority and low-income residents.
The commitments from Bank of America and the Bank of Boston are commendable, but they are not altruistic--just good business. The banks will ante up the money as part of their individual efforts to secure the winning bid to buy the failed Bank of New England. The banks faced formal protests from community groups, which were concerned that money for the acquisition would be diverted from credit programs, required under the federal Community Reinvestment Act (CRA) of 1977, for low-and moderate-income areas.
Economic revitalization has long eluded many of the nation’s deteriorating urban centers, despite local government efforts. Private attempts to halt the decline have faltered and sputtered out, in large part because community entrepreneurs and residents often face discriminatory lending practices. Sometimes they can’t even find a bank branch in their neighborhood. Banks have bet their money instead on high-risk Third World loans, leveraged buyouts and megabuck real estate.
The CRA law was enacted to prevent banks and savings and loans from redlining--the systematic practice of refusing loans to certain neighborhoods deemed to be deteriorating. Banks generally have been reluctant to make their CRA lending goals public or to commit them to writing unless goaded into action by persistent community groups.
Bank of America, which was among those resisting commitment, responded with the biggest pledge ever made by a U.S. bank. The San Francisco-based bank will provide at least $5 billion over 10 years for construction and rehabilitation of low-income housing, home loans, small-business loans and consumer credit. Bank of Boston similarly committed $600 million to minority and low-income communities.
Economic empowerment is crucial to combatting the despair and decay gripping the inner cities. The young especially need hope. By financing the American dream, an enterprise less glamorous, perhaps, than megabuck real estate, but grand enough, banks will help restore families, neighborhoods and communities. That is sound business.
