As if banks didn't have enough regulatory burden to worry about, they now have the Justice Department deciding where they must locate their offices.
For a little over a year the Justice Department investigated Washington's largest thrift, Chevy Chase Federal Savings Bank, to uncover racial discrimination in its lending practices. Apparently, Justice came up dry. According to' news accounts, there was no evidence that Chevy Chase had denied credit to anyone on a prohibited basis.
Undaunted, the bureaucrats at Justice decided to take the law into their own hands. They declared Chevy Chase was not trying hard enough to serve areas of the city with high numbers of minorities, as evidenced by Chev Chase's dearth of branches in hose areas.
So Justice demanded, among other remedies, that Chevy Chase open additional offices in certain neighborhoods populated with African Americans. Rather than spending millions of dollars on litigation and suffering through more negative press. Chevy Chase capitulated.
Attorney General Janet Reno labeled Chevy Chase's lack of branches in minority neighborhoods "sobering." That's a good word, but it would be more aptly used to describe the Justice Department's behavior than Chevy Chase's.
Ms. Reno went on to say "to shun an entire community because of its racial makeup is just as wrong as to reject an applicant because they are African Americans." It's "sobering" to learn that the leader of our nation's Department of Justice has such a jaundiced view of the mores and business acumen of bankers.
The top officials of the nation's banks keep a sharp eye on the bottom line and are continually looking for ways to expand their customer base. To contend that any banker worth his or her salt would refuse to expand into a neighborhood from which profits could be made because they didn't like the racial composition of the neighborhood is the height of ignorance and demagoguery.
If the government is truly interested in encouraging banks to reach out to low-income neighborhoods, there are far more productive avenues available than the route chosen by Justice at Chevy Chase. For one thing, the government might make it easier and less painful for banks to close unprofitable branches.
One of the principal impediments to banks finding new ways to serve low-income neighborhoods is that they can't easily correct their mistakes. If a bank decides to open branches in a low-income neighborhood, it will find it extraordinarily difficult to shut down the offices that don't work out. That is a very substantial deterrent to entry.
State and local governments provide massive subsidies to persuade rich owners to locate sports teams in their areas. If governments were to devote a fraction of that energy and money to working with bankers to bring financial services to all corners of the community, tal more lasting good might come from it than from landing a new sports team.
