The two largest banks in Los Angeles are poised to consummate the largest merger in the history of American banking. Taken together, Security Pacific National Bank and Bank of America account for 42.5% of the bank deposits in Los Angeles County, and the combined bank will have more than $35.4 billion in deposits in Los Angeles County alone. The merger requires the approval of the Federal Reserve Board and the Justice Department, which must examine its social, economic and antitrust implications under a variety of federal laws during the next few weeks. The public has a right, and public officials have a responsibility, to carefully review what could be one of the most important economic developments of the decade in Los Angeles.
Among other things, the merger should be measured against the standard of the 1977 Community Reinvestment Act, which requires that banks provide services to the entire community in which they are located, including low- and moderate-income residents.
Mayor Tom Bradley, Councilman Mark Ridley-Thomas and I, along with other city officials, have been actively engaged in reviewing the available information about the merger and its potential impact on our community. Interestingly, months before the merger was announced, many of us had begun a review of banking practices, particularly their impact on low- and moderate-income neighborhoods in Los Angeles. Those of us concerned about bank lending, services and policies were particularly concerned about the actions and inactions of Security Pacific and Bank of America, the state's two largest banks. The pending merger only magnifies our concerns.
The following is an overview of some of the issues that we're concerned about:
Since neither Bank of America nor Security Pacific has met all of the financial service needs of the community in the past (particularly in low- and moderate-income communities), why should we believe that a new, combined bank will do better, as Bank of America has promised?
In particular, I am concerned that a "streamlining" of operations as a result of this merger could lead to a reduction of banking services to already underserved communities here and elsewhere in California. Recent information from the Fed shows an appalling pattern of discriminatory home-loan lending by both banks. Not only does this report show that de facto red-lining continues, it also shows that a minority applicant with an above-average income has a poorer chance of getting a loan than a white person with a below-average income.
Small-business loans to minorities are equally appalling. The information available to us shows that there is every reason to believe that the same sort of discriminatory home-loan practices exist in this area, too. If there is a merger, some of the savings from the combined operation should be used to remedy this deficiency.
As was the case with discrimination in voting and school segregation, the federal government, through the Fed, should appoint a civil-rights monitor to actively audit loan applications to help ensure that discriminatory practices do not continue.
There are a number of innovative proposals that could use the strength of our free-market financial service community to prudently assist those low- and moderate-income residents most in need of financial services. Prime among these is the proposal to create in Los Angeles a multibank community development corporation, financed by banks, that would focus on economic development by making loans and taking on equity partnerships in targeted businesses. This arrangement is sanctioned by the Fed and has been employed successfully in other communities.
The new BankAmerica, if there is to be one, should leap at the chance to provide leadership in creating and capitalizing on such an institution here in Los Angeles to show that it really is the banking leader its public-relations efforts want us to believe. This effort must, of course, be implemented together with city officials and community leaders to ensure success.
The new bank should also show that it understands what service means. As the dominant bank in Los Angeles, BankAmerica should commit to three fundamental service goals, or be required to do so by the Fed as a condition of the merger.
First, it should make a commitment of at least 10 years to its basic-banking program, which allows low-income residents of California minimal banking services at a reasonable fee. This is the "lifeline" concept already in place for telephone and utility services.
Second, the new bank should make a long-term commitment to cash government checks for a single, low fee, rather than at the so-called "market rates" it charges today, really little more than a fancy check-cashing service. The new BankAmerica should instead provide a genuine alternative to commercial check-cashing services, which one out of five families in the country now use because banks are unavailable or their rates are just as high and less convenient.
If the new bank makes a long-term commitment to lifeline banking and government check cashing for low-income residents of California, it will have provided an economical alternative to the commercial check-cashing services, which charge exorbitant fees to people least able to afford them. At present, Bank of America provides basic banking services, but without a long-term commitment to the Fed, the new bank could end these services tomorrow.
Finally, the new bank should make a commitment to open branches in areas not now served by either Security Pacific or Bank of America. In many cases, one or the other has recently closed branches serving these communities. It is not enough to pledge "no new underserved areas."
For many, it is a novel concept to challenge banking practices. Somehow, big banks have been able to create a mystique and fend off serious enforcement of laws designed to ensure fairness in the federally insured, government-guaranteed banking industry. Only last month, the industry received an additional $70 billion in federal taxpayer guarantees from Congress and the President.
There are laws on the books, and regulators charged to enforce them. They should require that federally insured financial institutions provide services to the entire community.
If these laws are to mean anything, they should be applied to the largest bank merger ever.