Planting Money at the Roots

A.P. Giannini would be proud. The Bank of Italy, which he founded in 1904, is today’s Bank of America, which is sticking to one of his basic business tenets: “banking that builds.”

That’s the idea behind B of A’s leadership role in pledging $140 billion in loans over 10 years to lower-income and minority borrowers and small business owners, mostly in inner cities. The community loan commitment is the largest ever by a bank.

This is not charity, just good business. B of A and some other institutions find that lending to boost small businesses and homeownership is profitable and socially responsible because it helps to create stable neighborhoods and generate jobs. Contrary to popular perception, delinquency rates among lower-income borrowers are no different from other loans.

Although the federal government had to nudge banks into lending to poor communities with the Community Reinvestment Act, banks now recognize that grass-roots lending can be a sustainable, attractive and profitable portfolio.

B of A’s commitment--half of the $140 billion will go to California--is even more notable because it is purely voluntary. Lenders typically commit to community loan programs when they want support for a merger or acquisition. That’s been the case with Wells Fargo, Washington Mutual and B of A itself. In 1992, B of A promised to lend $12.1 billion in low- and moderate-income areas over 10 years as a condition of its merger with Security Pacific Bank. That commitment was fulfilled in less than five years. Based on that experience, B of A, owned by San Francisco-based BankAmerica Corp., decided that lending to lower-income borrowers was profitable and could be done with an acceptable level of risk.

Giannini founded his bank to provide loans to those denied access in his time--immigrants, wage earners, entrepreneurs and farmers. BJofJA does right by continuing that tradition.