Large Banks Pressed to Hasten Rebuilding With Flow of Credit : Money: Riots renew a dispute between bankers and community activists who accuse the institutions of not doing enough for South Los Angeles.

As Los Angeles looks for money to rebuild its riot-torn streets, pressure is building on California’s largest banks to step up with not only temporary financial relief but also specific long-term programs to ensure that credit flows more freely to South Los Angeles.

Banks are under pressure because for years many have touted lending records in low-income areas while fending off criticism from community groups that they don’t do enough. Now, bankers and community activists say, the institutions will feel even more heat because of the badly needed loans to finance rebuilding and economic development.

“They are walking on the fence and can go either way. Now is the time to step up and put your money where your mouth is,” said Carlton Jenkins, managing director of Founders National Bank in Los Angeles, the city’s largest black-owned bank.

The riots have renewed a longtime dispute between the state’s largest banks and community activists, who have argued for years that banks have not done enough to provide loans and banking services in South Los Angeles. The result, they contend, has been a lack of business development, lower home ownership and a proliferation of finance companies, pawn shops and check-cashing services that charge high interest rates and fees.

Most banks were cautious about disclosing specific, long-term plans on Monday. “We think it is premature to start throwing numbers around now,” said John Popovich, a First Interstate Bank senior vice president who oversees the bank’s Community Reinvestment Act activities.

Los Angeles City Councilman Mark Ridley-Thomas said Peter V. Ueberroth, named by Mayor Tom Bradley to head rebuilding efforts, is working on a plan with banks. “And no chump change,” Ridley-Thomas said.

Several banks did disclose some plans, and more is expected.

American Savings Bank pledged $1 million to the rebuilding cause. Bank of America said it will provide $25 million toward rebuilding small businesses, including a provision in which it will consider taking a small ownership position in some businesses through a wholly owned investment corporation. And Glendale Federal Bank is committing $50 million in mortgage loans for homeowners and apartment building owners to rebuild.

The city’s three major black-owned institutions--Founders National Bank, Family Savings Bank and Broadway Federal Savings--are joining in an effort to get much-needed loans to businesses that have been hurt. But those institutions are limited because they are small, holding only about 3% of the $9 billion in deposits in the South Los Angeles area.

More open to question is how much locally based Korean banks will be able to help in the recovery of that area. Chris Chenoweth, general counsel with the California Bankers Assn. trade group, said the organization is concerned about the financial health of the banks because their customers are so heavily concentrated in damaged areas such as Koreatown. But bankers there expressed optimism that losses can be contained.

Gilda Haas, an organizer with the Communities for Accountable Reinvestment, said one action the banks could take immediately would be to liberalize their check-cashing policies to make it easier for people with government checks to cash them.

Others say banks could review their underwriting standards in the area to address the longstanding criticism that the dollars banks often commit to low-income areas are too hard to get because banks have overly strict standards.

“They have announced commitments involving huge dollars to the area, but they still have pristine underwriting standards,” said Wayne-Kent Bradshaw, president of Family Savings.

Banks argue that they have programs in place designed to provide credit to the area while still meeting underwriting standards that protect them from making bad loans. But critics counter that banks frequently plunge into riskier lending than the kind they would be involved with in low-income areas.

“They didn’t seem to follow their own careful criteria when lending to Third World dictators, to risky commercial real estate ventures or to leveraged buyouts,” said Robert L. Gnaizda, a lawyer with the Greenlining Coalition, a statewide group that pressures banks into lending more to low-income and minority customers.

Times staff writer Susan Moffat and George White contributed to this story.