Community banks need to have sufficient assets and have some branches where they can service several local communities. The New America Foundation in Washington D.C. was the first to propose (2008) as a vehicle a Community Bank Trust Fund, to be administered by the Treasury Department.8 Their study stressed that some such banks need funding sources beyond local depositors. They proposed that funding could come from a tax of about one-half of 1 percent of the dollar amount of asset-backed securities, to be collected by the SEC. As a precedent, they refer to the Federal Home Loan Banks that are required to give 10 percent of their annual net income for the Affordable Housing Program.9 This is a matter that voters should bring to the attention of their congressional representatives. (more…)

Some of us need credit, especially at the end of the month, for food or gasoline, or to pay utility bills. So our first remarks concern that part of the population. Although in 2009 12% of the population had no regular bank account into which to tap, the numbers are higher for Afro-Americans (28%) and Hispanics (30%). When economists write about this group, they refer to them as “low and mid income people (LMI)”. For some, there were no banks available. The number of banking institutions dropped BY 35% from 1975-95 and that included dropping branches in low income communities. Large banks bought up community ones and the number of the latter dropped from 14,000 in 1985 to 7,000 in 20081.3 (more…)

Ethical Considerations That Favor Community Banks

Ethics are directly related to social relationships, and here are some reasons why the ethics favor community banks:. Community and Credit Union banking involves community relationships between borrowers and lenders. There is a good probability that they will know each other or have mutual acquaintances. The character of borrowers and lenders counts for something in decisions that contribute to trust and loyalty. There can be a mutuality of interest between creditors and those to whom they lend. Within the large, international banks, the relation is transactional, counting mainly as business deals. The future destiny of some locally invested funds within the international banks may not be known by either party.¹
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The Third Essay in the sequence on income inequality.

This is the first in a series of four blog entries that seek to demonstrate the link between income equality and economic and financial policies and to show how community banks can help to alleviate income equality in the country.  This topic is rarely if ever covered in mainstream media.

“ While community banks with assets under $1 billion represent less than 11 percent of banking assets, they provide nearly 40 percent of the loans the banking industry makes to small businesses, extending credit that is crucial to job creation…They have a unique role to play in our financial system.”—-FDIC Acting Chairman, Martin J. Gruenberg, American Bankers Association, October 25, 2011.–

Summary: IPPA supports the use of community banks and credit unions for people who routinely bank as individuals or as family members. In contrast, the priority of large international banks is to provide services to corporations, many of them global. Their profits come mainly from trading, which may not benefit local depositers. We can ask if those big banks provide any local social or economic benefit. Normally, community banks have less than $1billion in assets, and, until 1994 made up 94% of the banking industry. Their officers are usually members of the local community. Below, we also point to warning flags to consider when making a choice among community banks, such as their assets and collateral and the composition of their boards. We offer compelling ethical reasons why those institutions may warrant our business, one of which is that there are community relationships between borrowers and lenders, which may foster trust. We begin by flagging the services community banks could provide to people at the lower end of the income spectrum.