City treasurer determined to reverse lending inequities by depositing tax dollars in smaller, local banks

City Treasurer Melissa Conyears-Ervin said Thursday she’s determined to reverse lending inequities that have made it more difficult for people of color to buy and improve homes and start new businesses — and she plans to do that, in part, by depositing tax dollars in smaller, local banks.

Two days after retiring Inspector General Joe Ferguson shined an unflattering light on the longstanding problem, Conyears-Ervin highlighted her own efforts to solve it.

She pointed to the “Equity in Banking Commission” she created with State Treasurer Mike Frerichs to pressure big banks to start lending in South Side and West Side neighborhoods still suffering from decades of disinvestment.

And she pointed to the ordinance she championed that lowered the bar for banks vying to become so-called “municipal depositories,” holding up to $400 million of Chicago’s tax dollars.

Instead of forcing banks seeking to hold city funds to “collateralize” those deposits at a rate of 102%, the guarantee intended to protect the city’s money beyond the FDIC-guaranteed $250,000 was reduced to 100%.

“If we’re asking for you to collateralize it more than what it’s even valued at, at 100%, what the banks are telling us is — especially smaller banks — they can’t afford that. That’s money they’re not able to lend out to the community. That’s money that they’re not able to make more money off of to help them stay in business,” the treasurer said.

“In order for us to do business with the smaller community banks, they first have to apply. And we have to be able to encourage them to apply. So we need to take away these burdens … so we can give them more money to lend. … To be able to tell the community banks, ‘We do not want it to be a burden on you to hold our money. We want it to help you and to help residents.’”

In a scathing audit released earlier this week, retiring Inspector General Joe Ferguson concluded the city continues to deposit millions of tax dollars in banks that engage in discriminatory lending practices because the Department of Finance is not using the tools it has to stop it.

Banks designated as “municipal depositories” have long been accused of investing far more money in majority-white neighborhoods than in communities of color.

The most recent study documenting those inequities was conducted by WBEZ-FM (91.5). It showed banks lend 12 cents in Black neighborhoods and 13 cents in Hispanic neighborhoods for every $1 they lend in white neighborhoods.

To promote “diversity, inclusion and equity” in lending, Chicago’s “Responsible Banking Ordinance” requires banks receiving city deposits to submit detailed information about their lending practices.

Ferguson’s audit revealed “rigorous collection” of the legally-required information — but “no substantive evaluation” of that information.

The Department of Finance “does identify potentially predatory loans” and follows up with banks to inquire about the “specific conditions underlying” those loans. But the department has “never declined to designate a bank as a municipal depository on the basis of such lending conduct.”

“Without undertaking a substantive evaluation of each bank seeking designation,” the audit states, the finance department “cannot identify demographic disparities in banking activities. Banks may then continue to lend inequitably across Chicago while the city continues to partner with them.”

On Thursday, Conyears-Ervin was asked why the city doesn’t simply put its money where its mouth is — by saving the 13 coveted slots as municipal depositories for banks that invest in long-neglected South and West Side neighborhoods.

“The best way to do it is to have other banks to put money in. Right now, we’re still trying to encourage other banks to apply,” she said.

The last time she testified before the City Council’s Finance Committee on the longstanding lending controversy, Conyears-Ervin appealed to aldermen — who include her husband, Ald. Jason Ervin (28th).

“Please let me know what your neighborhood banks are.,” she said then. “I want to reach out to them personally. I don’t even know if any treasurer has ever done this in history. This is how intimately involved I am with this process. I am just being non-traditional at this point because I think that’s what it’s going to take,” Conyears-Ervin said.

“We’re certainly hoping that it will make a difference because our residents [deserve better]. It’s not fair. They should have access to capital. … We want to do business with people that want to do business with all of our residents. There are 77 neighborhoods in Chicago. And it is only fair that 77 neighborhoods have access to capital.”