Banks with a history of credit inequity dominate the competition for City of Chicago deposits

Smaller local banks fought off competition to hold $ 400 million in Chicago tax dollars – even after City Hall lowered the bar to attract them – allowing the competition for municipal deposits to be dominated again by the large banks with a history of lending inequities.

Eleven banks responded to the city’s latest request for proposals to become city depositories, the first since the city demanded that banks competing to hold city deposits shed light on their lending practices.

City comptroller Reshma Soni told the city council’s finance committee on Tuesday that 48 banks had been contacted and only eleven responded – all the usual big banks one would expect: Amalgamated Bank of Chicago; Associated bank NA; Bank of America; BMO Harris; Fifth Third Bank; JP Morgan Chase Bank NA; PNC Bank; Huntington National Bank; Wells Fargo NA and Zions Bancorporation.

City Treasurer Melissa Conyears-Ervin reached out to community banks and convinced Council to lower the bar by allowing banks seeking to hold city funds to “guarantee” city deposits 100% at 102% rise to protect the city’s money beyond the FDIC’s $ 250,000 guarantee.

“We need to understand this process – over 50 years old – what is preventing banks from applying? The banks we want to apply. It’s going to take us a while to figure it out, ”said Conyears-Ervin.

“We are all impatient. And every time we see this data from the Woodstock Institute [about inequitable lending ], it makes us get up even more. It’s just stable, digging in on us. We want to balance it. The city wants its money to be protected. We need to be financially responsible for our residents. But we have to be able to get these banks to lend to [all] residents. “

She added: “At some point city council will have to make some tough decisions. “

Ben Jackson, executive vice president of government relations at the Illinois Banking Association, said new data reporting requirements imposed on potential city custodians last fall served “to deter small businesses from establishing a relationship. commercial with the city ”.

City comptroller Reshma Soni agreed. She’s trying to convince small community banks to come forward and “tell us what’s stopping them” from joining the potentially lucrative and enabling competition to hold millions of dollars in city deposits.

“What are the barriers? We ask for a lot of paperwork to be able to make sure that the banks meet all of our requirements. What can we reduce while achieving our goal, but [make certain] we don’t make it so heavy that they spend weeks and weeks trying to fill it up? “

The information requested includes the amount of each Chicago home equity loan, by census tract; the reasons for refusing mortgages by race, sex and census tract; the number and location of bank branches in Chicago; and employee demographics by job category.

A quick scan of that first mountain of data found that “quite a few” banks performed “above average” in at least one category of mortgages and small business loans, according to Woodstock’s Horacio Mendez Institute.

But Mendez said Citibank was the only bank to perform above average on the four measures. First Midwest came in second with three of four, followed by a tie between PNC and Fifth Third.

Jackson of the Illinois Banking Association has openly acknowledged the “story of inequity” in lending to communities of color in Chicago and across the country. But, he also highlighted the “progress” that “some banks” have made.

“I can tell you that every IBA member bank that has applied through this process is looking to do better. And not just better in the lending space, but better in terms of small business development, financial education, financial learning, and workforce diversity. They are particularly focused on diversifying their executive suites and meeting rooms, ”Jackson said.

Anthony Simpkins, president and CEO of Neighborhood Housing Services, said Chicago’s hopes of reversing the black exodus depended on the performance of the banks. He noted that the number of owner-occupied households in black neighborhoods has fallen 13.6% over the past decade, compared to a drop of 2.8% citywide.

“Neighborhoods like Austin and Englewood are losing owners. … They lose access to the economic power of home ownership just because black applicants can’t get mortgages, ”Simpkins said.

“It means they are losing customers to support local businesses. They lose children to attend local schools [and] neighbors to create community and a loss of the capacity of families to create a legacy of generational wealth.