Dallas has a simple message to banks wanting to do business with the city. If you want the city’s $200 million+ deposits, you have to seriously invest in minority communities and be prepared to open your books to prove it.
City officials are in the final stages of crafting a “responsible banking ordinance” that would require banks competing for city deposits to submit loan data showing how much they lend in minority neighborhoods and submit reinvestment plans setting targets for future lending. If the City Council approves the proposal, Dallas would join about 13 cities, including neighboring DeSoto as well as Cleveland, Minneapolis, Los Angeles, Kansas City and Pittsburgh, which have passed various responsible banking ordinances in an effort to increase investment in poorly-served communities. served.
The reality is that the Dallas proposal, while long on righteousness, is mostly symbolic and limited in scope. Regulatory oversight of banks rests with state and federal regulators, leaving cities to cajole and incentivize investment choices. With no authority to mandate where or how banks invest, the city attempts to use its financial leverage to encourage banks to be more active lenders and participants in underserved neighborhoods as a condition of earning city deposits. .
The jury is still out on the impact of local banking ordinances on increasing investment in underserved neighborhoods. Nonetheless, Dallas’ proposed banking order continues to signal a renewed commitment to reversing decades of underinvestment and divestment in low- and moderate-income neighborhoods.
Banks play a vital role in providing access to capital and meeting the credit needs of communities and, in some cases, have been important partners in the solution. But communities live and die by the ability of residents to access capital and credit. The City is right to insist on this point as often as possible and to remind financial institutions of their obligations to treat neighborhoods fairly.
In the long term, Dallas and other cities facing reinvestment issues could benefit from a more robust community reinvestment law. Passed in 1977, the landmark federal law required banks to serve their customers fairly and end redlining and other lending discrimination. The law was last overhauled in 1995, and some consumer groups and federal regulators say the measure should be updated to better reflect changes in how banks provide consumer credit and services. consumption to customers and to remove perverse incentives that have allowed some banks to meet federal obligations. reinvestment needs without making large commercial or residential loans in underserved neighborhoods.
Dallas’ checkered past of systemic divestment has deprived South Dallas neighborhoods of access to bank branches, loans, and economic development opportunities. Longstanding patterns of divestment will not be reversed quickly, but positive changes will occur when financial institutions, the city and community groups work together to level the playing field when it comes to investing.