In the late 1970s, Congress passed legislation compelling banks and other financial institutions to abandon their formerly general practice of ignoring the financial
services needs of low- and moderate-income borrowers and other segments of
their market areas. The Community Re-investment Act mandated that banks establish clear policies to become active partners in the redevelopment of declining
neighborhoods and in economic development strategies throughout their markets.
During the three decades since the act
became law, banks have become significant players in helping communities realize
their economic development and redevelopment plans, says Brian Matthews, community development officer for the Western Reserve Region of Sky Bank.
Smart Business spoke with Matthews
about how banks are working to strengthen local economies, and why all businesses
should adopt community reinvestment
policies of their own.
Why was the Community Reinvestment Act
instituted?
Prior to 1977, many banks were not lending money or providing services in certain
areas of their markets such as low- and
moderate-income neighborhoods or in certain ethnic communities. The Community
Reinvestment Act states that banks will do
business within the entire market area in
which they serve.
How do banks comply?
Essentially, banks participate in community reinvestment by lending money for
affordable housing developments, or business loans. Banks build partnerships
through employee community involvement with nonprofit, for-profit and governmental organizations, which help them
identify donation and investment opportunities within the community.
Federal bank examiners evaluate if and
how a bank is meeting those community
reinvestment requirements.
How do banks identify community reinvestment opportunities?
Through their community development
officers, banks develop relationships with
local organizations and become involved in
opportunities to transform the community.
Community development officers also
work with chambers of commerce, executive directors of community development
organizations and with community planners to understand where the marketplace
is going and what planners have in mind
for the community.
What kinds of projects are considered opportunities for community reinvestment?
Projects typically considered are opportunities to create or promote affordable
housing, economic development initiatives
in both urban and rural areas, small business startups, existing small businesses’
growth, and economic revitalization initiatives in urban neighborhoods and elsewhere that will create new jobs.
What kind of commitment does participating
in community development projects require?
It’s a long-term investment in time and
resources. Community reinvestment
means working with people to create lasting relationships throughout the community. It also means working with them on
projects that are two, three or four years
down the road. At the same time, it’s working to understand what the new community development trends are and how to
invest in those initiatives.
There are rewards. When a person who
has been renting for 20 years finally gets their own home, or when a small business
that has five or six employees can grow to
25 or 30 employees, it’s well worth it.
What are the practical business benefits to
community reinvestment?
If a business is involved in community
reinvestment, it’s seen as a responsible corporate citizen. Community development
involvement can be touted in a business’s
literature and in other publications.
Beyond that, community reinvestment provides an opportunity to grow market share
in new areas and cultivate new customers
throughout the market.
What are the general benefits of reinvestment to the community?
Generally, community reinvestment on
the part of banks and other businesses is a
development tool for community leaders,
including economic development agencies, to draw new businesses into the community. It sends the message that companies are interested in the needs of the community and are trying to capitalize on new
opportunities. It sends a positive message
that the community wants new business.
Can businesses outside of banking also benefit from community reinvestment?
Community reinvestment is a win-win situation for all businesses and communities.
By choosing to be a responsible community partner, businesses will foster an environment that spurs job growth and investment in the community, thus making their
business’ success an integral part of a community’s success.
Huntington Bancshares Incorporated’s
merger with Sky Financial Group, Inc.
was completed on July 1, 2007. Subject to
receiving approval by the Office of the
Comptroller of the Currency to merge Sky
Bank and The Huntington National Bank,
bank systems conversions are scheduled
for late September. This is also when signs
of the Sky Bank offices will be changed to
Huntington.
BRIAN MATTHEWS is the community development officer for
the Western Reserve Region of Sky Bank, and is based at Sky
Bank’s Akron office. Sky Bank serves communities in Ohio,
Pennsylvania, Michigan, Indiana and West Virginia. Contact
Matthews at (330) 258-2353 or [email protected]. For more
information, visit www.skyfi.com.