In an unprecedented joint plea, three top regulators on Monday implored banks to expand their community development efforts in inner cities.
Speaking just blocks from the South Central Los Angeles neighborhoods devastated by the 1992 riots, Federal Reserve Board Chairman Alan Greenspan, Comptroller of the Currency Eugene A. Ludwig, and Office of Thrift Supervision Director Ellen Seidman said inner-city communities still do not receive enough credit.
"There have been impressive improvements in many neighborhoods throughout the country," Mr. Greenspan said. "However, much remains to be done. Many urban, capital-poor neighborhoods across America present new and unique challenges for financial services institutions."
The trip was organized by California Democratic Rep. Maxine Waters, who began the day by taking the regulators on a short walk up Vermont Avenue, in the heart of South Central.
Surrounded by nearly 100 reporters, photographers, and television crews, the group gathered within sight of a check-cashing outlet and a pawnshop. They then walked three blocks past six vacant lots and several boarded-up buildings that were destroyed in the riots. There were no banks in sight.
Abandoning his usual practice of avoiding off-the-cuff remarks, Mr. Greenspan commented on the value of seeing run-down areas first-hand. "We regulators are swamped with all sorts of data," he said, 50 feet from scores of day laborers looking for work. "It is terribly important once and a while to look at what is under those numbers ... You have to go out and look on the ground."
Later, at a forum on the Community Reinvestment Act, Rep. Waters called on Congress to require insurance and securities firms to invest in inner- city neighborhoods.
"We must expand CRA or CRA-like coverage to these sectors if we are to preserve the integrity of the act," she said.
Donald Mullane, executive vice president for corporate community lending at BankAmerica Corp., agreed, saying credit card companies, mortgage companies, automakers, utilities, and insurers should have reinvestment obligations.
"We need every available player," Mr. Mullane said. "Think how much more our society could accomplish by securing the commitment and resources of America's entire financial services industry."
Mr. Greenspan said inner-city areas need equity investments from venture capitalists and mutual funds. "Without increased equity, CRA will break down because you need the appropriate mix of at-risk capital and debt," he said.
Mr. Greenspan added that there is a limit to how much banks can do.
"Banks are not philanthropic institutions," Mr. Greenspan said. "They are for-profit businesses with obligations to their stockholders, who require competitive rates of return and are subject to a regulatory apparatus which protects their depositors from losses owing to unsound practices."
Mr. Ludwig made a pitch for giving banks new powers, saying that without the ability to enter new businesses-especially through direct operating subsidiaries-banks will lose market share and be less able to invest in inner-city communities.
He urged banks to work with churches, development groups, and local governments. "We must move from an era of confrontation to partnership," he said. "Vibrant partnerships are the key to successful and lasting community development."
Mr. Ludwig exhorted banks to develop innovative loan products that make it easier for consumers to qualify for credit. Lenders should study the reasons for higher default rates in existing low-income loan programs to further refine their products, he said.
Mr. Greenspan also urged banks to reduce their reliance on government subsidies for community development, saying these funds are subject to unstable political whims.
"The challenge to the industry is to find alternative methods of packaging safe and sound community development deals which do not depend on the continued existence of significant quantities of public money," he said.
