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 Reinvestment Act mandated that banks establish clear policies to become active partners in the redevelopment of declining neighborhoods as well as in economic development strategies throughout their market areas.
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 reinvestment officer for the Western Reserve Region of Sky Bank, headquartered in Bowling Green, Ohio.
Smart Business spoke with Matthews about how banks are working with local business and nonprofit groups, as well as government agencies, 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. Basically, they were redlining those communities. The Community Reinvestment Act states that banks will do business within the entire market area 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 organizations within the communities they serve, 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 generally 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 a place to live 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.
It also means the business community is progressive in identifying the value in the community.
Can businesses outside of banking also benefit from adopting community reinvestment policies?
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.
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.
