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Kiln     There’s no question that there are new regulations governing bank transfers.  Banks are trying to claim that anti-terrorism measures are the cause, though more than a decade after 9/11, it seems unlikely to me.  There seem to be three reasons that some banks are running from money transfers and remittances.

The current cause celebre is the fact that HSBC and BNP Paribas got caught in down-and-dirty money laundering for countries like Iran and others that they were banned from handling.  BNP pled guilty and is paying fines of almost $9 billion.  HSBC’s wings were also clipped for almost $2 billion.  Citibank’s Banamex affiliate in Mexico got burned for almost a half-billion on sketchy oil company prepays and likely investigations will find that they – and certainly others – were up to their neck in handling drug money there as well.  Money laundering is not terrorism, and neither is it the simple transfers of remittances for migrant workers and immigrant families.

A more substantial reason that banks are exiting the remittance business is that once you block out laundering and the obscene profits involved there, many banks charge exorbitantly to transfer funds solely for their individual and corporate customers, and justify the charges, as I have heard them do numerous times, by saying they only do it as a “convenience” for their clients.  In every study ACORN International has done  standard money transfer organizations (MTOs) like MoneyGram and Western Union charge significantly less to move remittances.

The third reason, and I suspect the more fundamental and serious one, is that many of the large money center banks are running from minorities at every level in the wake of the recession and the changing economic situation and credit markets.  With the erasure of 25 years of gains by African-Americans and Hispanics in home ownership since the beginning of the Great Recession including millions of homes still underwater, owing more on the mortgages than the home’s value, and the refinance market drying up, banks have figured out who has the money now, and it’s not low-and-moderate income families, at least not if the banks are going to have to play square and follow the rules.  I would bet just about any dollar I could get my hands on that as the HMDA reports become available for 2013 and 2014 that we are likely to see the fewest number of loans to minority families that we have seen in the 36 years since the passage of the Community Reinvestment Act in 1978.  We’ve already looked at the early returns for some US markets, and seen some banks with single digits of loans or no loans whatsoever.  Banks are going where the money is.  They’re looking for 1% land.  The LMI business and minorities are now just leftovers.

Bank public relations departments may be planting stories about the cost and fear that banks have in transferring remittances, but we make transfers every day and talk to banks regularly, and given the electronic nature of these charges and the real costs, we’re only talking about the difference between something being crazy profitable and simply wildly profitable.

But, you have to want the business, and that’s the rub.  I think big banks are simply bailing on all those left behind.   The Times swallowed the spin, saying…

Many banks had considered remittances an attractive business because they generated steady fees and required little capital. In some cases, remittances could satisfy Community Reinvestment Act requirements to serve a certain percentage of low-income customers.  But the regulatory pressures and increased costs of compliance have started to outweigh the potential profits.

 

There’s no question they’re running from remittances, but despite all of the antidotes and finger pointing at the government, it’s clear the big banks just don’t like the looks of us, and rather than making the needed repairs and simple fixes are trying to rationalize their way out of defending their charters by claiming we’re too risky for them.  Our hard earned dollars are becoming dirty next to their white shoes.  This is just another kind of white flight, and we’re going to have to gear up for the fight again.

 

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