Big banks with history of lending inequities dominate competition for city deposits

Smaller, local banks spurned the competition to hold $400 million in Chicago tax dollars — even after City Hall lowered the bar to attract them — allowing the contest for municipal deposits to be dominated again by big banks with a history of lending inequities.

Eleven banks responded to the city’s latest request for proposals to become municipal depositories, the first since the city required banks vying to hold city deposits to come clean about their lending practices.

City Comptroller Reshma Soni told the City Council’s Finance Committee Tuesday that 48 banks were contacted and only eleven responded — all the usual big banks one would expect: Amalgamated Bank of Chicago; Associated Bank N.A.; Bank of America; BMO Harris; Fifth Third Bank; J.P. Morgan Chase Bank N.A.; PNC Bank; Huntington National Bank; Wells Fargo N.A. and Zions Bancorporation.

That’s even after City Treasurer Melissa Conyears-Ervin reached out to community banks and convinced the Council to lower the bar by allowing banks seeking to hold city funds to “collateralize” city deposits at 100% instead of 102% to protect the city’s money beyond the FDIC-guaranteed $250,000.

“We have to figure out this process — over 50 years old — what is it that is restricting banks from applying? The banks that we want to apply. It’s gonna take us some time to figure out,” Conyears-Ervin said.

“We’re all impatient. And every time we see this data from the Woodstock Institute [about inequitable lending ], it just makes us rise up even more. It’s just steady, digging at us. We do want to balance it. The city wants its money protected. We have to be fiscally responsible for our residents. But we’ve got to be able to have these banks lend to [all] residents.”

She added: “At some point, the City Council is gonna have to make some difficult decisions.”

Ben Jackson, executive vice-president for governmental relations at the Illinois Banking Association, said the new data reporting requirements imposed on would-be municipal depositories last fall serve as a “disincentive for smaller firms to establish a business relationship with the city.”

City Comptroller Reshma Soni agreed. She’s trying to convince smaller community banks to come forward and “tell us what’s holding them up” from joining the potentially lucrative and empowering competition to hold millions in city deposits.

“What are the barriers? We ask for a lot of paperwork to be able to ensure that the banks are meeting all of our requirements. What can we reduce and still meet our goal, but [make certain] we’re not making it so burdensome that they’re spending weeks and weeks trying to fill it out?”

The information requested includes the amount of each home equity loan made in Chicago, by census tract; denial reasons for home mortgages by race, sex and census tract; the number and location of bank locations in Chicago; and employee demographics by job category.

A quick analysis of that initial mountain of data revealed “quite a few” banks have performed “above average” in at least one category of mortgage and small business lending, according to Horacio Mendez of the Woodstock Institute.

But Mendez said Citibank was the only bank performing above average on all four measures. First Midwest came in second with three out of four, followed by a tie between PNC and Fifth Third.

Jackson of the Illinois Banking Association openly acknowledged the “history of inequity” in lending to communities of color in Chicago and across the nation. But, he also pointed to the “strides” that “some banks” have made.

“I can tell you that every bank that’s an IBA member that applied through this process is looking to do better. And not just better in the lending space, but better in terms of small business development, financial education, financial apprenticeships and workforce diversity. They’re particularly focused on diversifying their executive suites and board rooms,” Jackson said.

Anthony Simpkins, president and CEO of Neighborhood Housing Services, said Chicago’s hopes for reversing the Black exodus depends on banks doing better. He noted the number of owner-occupied households in Black neighborhoods dropped 13.6% over the last decade, compared to a 2.8% decrease citywide.

“Neighborhoods such as Austin and Englewood are losing homeowners. ... They’re losing access to the economic power of homeownership simply because Black applicants can’t get mortgages,” Simpkins said.

“That means they’re losing patrons to support local businesses. They’re losing children to attend local schools [and] neighbors to create community and a loss of the ability of families to create a legacy of generational wealth.”