Community Reinvestment in Hard Times
New York City I spent some time with a friend at Citi yesterday. My first joke to him was, “how did he like working for the government again.” His jokes were more of the gallows humor variety, mentioning that he would be there to turn off the lights and other quips along that line. Many of the people, including the “relationship managers,” I had worked with for years had not survived two sets of Citi corporate layoffs during the hemorrhaging of the last 18 months in the bank.
In talking about bits and pieces of the business, he kept referring to this one or that one as part of the “good bank” or the “bad bank.” Credit cards with Citi’s brand on them were “good” bank, but cards for others like Diners’ Club or Home Depot or whatever, “bad” bank. Europe was a country going through the tubes — bad bank. India, Mexico, Latin America, and other countries where ACORN International worked, were still “emerging markets” and “good” bank. Much of what had been added in the last ten years was going or gone. The footprint of the bank would dial back to 1998.
The conversation was dizzying, so we hunkered down to talk about “citizen wealth,” my book coming out in several months by that title, and the future of home ownership as an engine for creating wealth for lower income families that both of us had staked years in developing under the Community Reinvestment Act (CRA). The right continues to take shots at CRA to see if they can get anyone who is sober to believe that it might be possible to blame loans in lower income and working neighborhoods for the current meltdown, rather than “greed and irresponsibility” as cited by President Obama. The question on both of our minds was whether or not there would be pressure to rollback CRA standards and performance benchmarks.
Between the lines it seemed that there was an internal debate within Citi itself on lowering CRA goals, which was surprising to me given the shrewdness with which the company had recently navigated the compromise on restating assets in bankruptcy proceedings recently and their general political astuteness. Few things would tempt the wrath of Congressman Barney Frank as much as a retreat from CRA standards and loans in the shadow of this amazing bailout by these institutions. On the other hand from what I gathered the Office of the Controller of the Currency (OCC) had already been at the bank several times since the inaugural signaling that the sheriffs were finally going to have guns in their hands, rather than their hands in their pockets as they did under Wall Street Secretary of Treasury Hank Paulson.
In a classic banker pose, the Citi strategy emerging from their internal debate was a conservative, “stay the course” on CRA. Hold on to the current quotas and benchmarks, but neither push for any improvements in CRA language or terms nor any rollback in those standards, particularly in the direction of a “pass/fail” standard for banks on CRA which some are proposing. The argument was easy to follow, because it was starkly stated in terms of institutional survival in hard times.
Mainly though it was sad. There was another path that could be pursued to use the bailout monies and the government’s ownership of 8% of Citi now to be a leader in showing the way for “safe and sound” investments in the very communities that were being devastated by the current crises and use CRA as part of the wedge to develop new tools and lending instruments to drastically expand homeownership while the opportunity of low market prices exists now, no matter how briefly. Pushing and prodding about the opportunities in the space to revive lending to Latinos got me nowhere. Making the case got me a tired head nod and remarks about the difficulty of lending without knowing real estate market depth.
It became clear that they were fighting in a bunker and trying to hold on to their 40 acres. Hopefully, once they “dust themselves off,” as the President says, they will see a way clear to lead again.
I warned my friend that I had acknowledged him in Citizen Wealth as one of the good guys in this area, so he either needed to find a place to hide in June when the book hits the streets or chance his name and his job. He laughed and said he appreciated the warning.
“Maybe we’ll just buy a bunch of the books,” he said as I got up to leave. Saying so, clearly he is also hoping there is a better day ahead for him and this hard fight on inside to do right on the outside with CRA and all it means.
Fingers crossed for the communities that are now more desperate for the community reinvestment than every before.