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Banking industry

Banking Mergers to Benefit Underserved Communities

Strategic Insights

— 2 min read

Consumer groups long ignored by the nation's banks, including minorities and those of low or moderate income, are expected to be among the winners in the banking industry's big mergers this year. The new banks, with extensive business in California, have committed nearly $600 billion in Community Reinvestment Act (CRA) loans over the next 10 years. This commitment is a significant increase from the banking industry's total CRA commitment of $585 billion over the first 20 years of the act.

Key Takeaways:

  • The Bank America Corp.-NationsBank Corp. merger has committed $350 billion to CRA loans over the next 10 years, a significant increase from the banking industry's total CRA commitment over the first 20 years of the act.
  • Washington Mutual has pledged $120 billion, including nearly $82 billion for single-family lending, as part of its pending $9.9 billion merger with H.F. Ahmanson & Co.
  • Citicorp and Travelers Group have committed $115 billion to community lending as part of their merger into the nation's largest financial institution.
  • The CRA commitments made by these mergers could transform banking from a local or regional business into a truly national industry, and critics worry that this trend may lead to higher prices and less service for consumers.
  • Washington Mutual CEO Kerry Killinger stated that CRA lending is good for the community and is terrific business, and that California, the nation's largest state, should get its fair share of the $120 billion pledge.
  • John Stafford, a spokesman for the California Bankers Association, noted that the default rate on home mortgages for moderate income borrowers is lower than for higher income borrowers.

Statistics:

  • The total CRA commitment of the three mergers is nearly $600 billion over the next 10 years.
  • The BankAmerica/NationsBank commitment of $350 billion is equivalent to the banking industry's total CRA commitment over the first 20 years of the act.
  • The Washington Mutual pledge of $120 billion includes $25 billion for small businesses and consumers, and $12.1 billion for multifamily developments.
  • The BankAmerica/NationsBank pledge includes $180 billion for small businesses, $115 billion for affordable housing, and $55 billion for other community lending.

Sources:

  • The Fresno Bee, "Consumers long ignored by nation's banks may win big in 2000 mergers," December 4, 2000.
  • The Fresno Bee, "Bank America, NationsBank pledge $350 billion to community lending," October 19, 2000.
  • The California Bankers Association, "CRA Lending: Good for the Community and the Bottom Line," 2000.

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