In most communities bankers have earned an enviable reputation as strong civil leaders. They can usually be found up front in every worthy civic project. And it is they to whom citizens generally look first to forge a rescue plan if city finances should ever falter.
But inner-city residents have long insisted that their neighborhoods have too often been missing from this otherwise bright picture of civic responsibility. They have accused banks of "redlining," arbitrarily denying mortgages and revitalization funds to certain sections of cities.
Many bankers bristle at the very suggestion that they have ever knowingly practised redlining. And a few economists such as the University of Rochester's George Benston, who recently reviewed all existing academic studies on the subject, insist there is no evidence at all to justify pointing a finger at banks for turning down creditworthy borrowers.
"I'm not saying that it never happened to anybody," explains Dr. Benston, a professor in the university's graduate school of management. "There are bigots elsewhere, so why shouldn't some of them be bankers? But we found no evidence in our review of studies going back to the '30s that redlining ever existed. . . . In fact, we found that very few people get turned down for loans."
Yet consumer leaders such as Gale Cincotta, head of National People's Action, a coalition of neighborhood groups, have argued adamantly that redlining by banks is a longtime and continuing problem. Proponents of this view point to consumer studies which show that many more loans are granted in suburbs than in inner cities.
Even bankers who admit there has been a problem and inner-city neighborhood advocates readily concede that redlining in the 1980s is not nearly the problem it used to be. Indeed, much of the current bank criticism from consumers focuses on the extent to which loans granted to home buyers and small-business men work to displace low-income residents with middle- and high-income buyers.
"The redlining fight isn't over, but we have to make sure now that the money isn't used for the wrong thing," says Mrs. Cincotta. "The middle class is now moving back to the very places [in the inner city] that they once moved away from."
Many banks have managed to put charges of redlining behind them because of pressures exerted by recent federal laws. The three-year-old community Reinvestment Act (CRA), for instance, calls on federal financial regulators to consider a bank's community revitalization efforts in its application for a merger or a new branch. Also, the recently extended Home Mortgage Disclosure Act (HMDA) forces lending institutions to list the total amounts of loans they have made by census tracts. Although it does not require a record of the number of loan applicants, consumer groups say the HMDA is a valuable monitoring tool.
Many banks now are giving inner-city mortgage applications a closer look. Bill Bosies, a government relations attorney for the American Bankers Association, notes that in the process many bankers have learned that a careful examination of the borrower and his repayment record is often more important than the value of the property to be used as security. Many have found there is a profit to be made in neighborhoods once dismissed as run down and that the risks may be worth taking.
"We're doing a fair amount of lending in the inner city and, while it's not as profitable as some loans, you really end up with better results than you would with straight charity," observes Donald E. Lasater, chairman of the board of the Mercantile Trust Company in St. Louis. "The Better off the city is, the better off we are over the long run. We're here and we're not going to move."
Still another possibility banks are discovering is a role as listener and catalyst. Many have made an earnest effort recently to make themselves more accessible to community leaders and their views of neighborhood needs. If a proposal is not workable, the banker may suggest changes rather than flatly reject it. Many banks have been taking the process an important step farther by forging new partnerships with community leaders and with other businessess and public agencies to broaden the commitment to neighborhood changes and tap a greater variety of sources for funds.
One sign of the new importance professional bankers attach to their role as agents for community revitalization is the formation within the American Bankers Association of a community economic development policy board. also, in response to a direct request from the Ad Hoc Coalition on Neighborhoods, representing some 50 organizations from the League of Women Voters to National People's Action, the bankers association agreed to hold an unprecedented session on the subject at its annual conference in Chicago this fall.
Next: How one bank helped revitalize a neighborhood.