In May 1985, Gov. Bill Clinton of Arkansas showed up at South Shore Bank in Chicago loaded with questions. He spent hours there and hours more touring the inner-city neighborhoods where the bank does business.

"He wanted to know everything," recalled James Fletcher, president of the bank, which is regarded as a trailblazing community development lender. "He asked how we managed risk, if we made money, whether our methods were transferable."

Network Foreseen

The tour provided a model for a bank that the governor said he would help organize in a depressed rural county back home.

As he prepares to accept the Democratic Party's presidential nomination in New York this week, Gov. Clinton hopes to take that model nationwide. He has promised to create, if elected, a nationwide network of community development banks, which might both compete with and complement established commercial banks.

The 45-year-old Arkansas has said little about the banking industry's bread-and-butter issues: deposit insurance premiums, capital standards, and the increasing burdens of regulation.

Job Creation a Priority

But this fascination with South Shore Bank, a subsidiary of Shorebank Corp., offers clues about his views on banking.

No issue is more important to the Arkansas governor than creating jobs, and he wants the banking industry to play a key role in such efforts.

Unlike the Bush administration, which adopted a deregulatory stance that appealed to large banks, big securities firms, and diversified financial services companies, Gov. Clinton wants to foster local action through a network of community-based institutions patterned after South Shore.

"He believes in small community banks," said Arkansas Banking Commissioner William J. Ford. "Small business is essential in job creation, and he knows that small businesses are created by small banks."

Mr. Ford and other who know the governor say he is likely to prove a determined advocate of community banking and of rules to force banks to plow money back into the communities from which they take deposits.

Interested in Banking Bill

In 1985, while Mr. Ford worked on legislation that would permit reciprocal interstate banking with 16 southeastern states, Mr. Clinton took a keen interest.

"Every time he met with me, he would say, |How's the CRA part?'" Mr. Ford recalled. "He was interested in the local communities, and he didn't want money flowing out of state."

Gov. Clinton hasn't changed his views much in the respect. His national economic strategy, a 22-page document titled "Putting People First," highlights his interest in the Community Reinvestment Act -- the 1977 law that drivers bankers to distraction.

As president, he said, he would "ease the credit crunch in our inner cities by passing a more progressive Community Reinvestment Act to prevent |redlining' an require financial institutions to invest in their communities."

Interventionist on Business

Some of his rhetoric has surely been shape by the Los Angeles riots, which set the stage for his economic paper, but Gov. Clinton has shown a preference for using government to modify business behavior in other areas.

While campaigning in New Hampshire, he repeatedly blasted the high rates banks were then charging on credit cards, suggesting strongly that he would act to cap interest charges.

He has also denounced executive compensation and called for legislation to deny tax exemptions for salaries of more than a yet-unspecified level.

Karen Shaw, a Washington-based analyst with close ties to Democratic insiders, including some in the Clinton camp, said she thinks bankers should not make too much of some of the rhetoric and coming out of the Clinton camp.

"A number of people buried in the policy apparatus [of the Clinton campaign] are a lot closer to Joe Kennedy and the Acorn folks than I feel good about," said Ms. Shaw.

She was referring to Rep. Joseph P. Kennedy 2d, D-Mass., and the Association of Community Organizations for Reform Now; both have taken activist positions on CRA.

"But that's the nature of a Democratic campaign," she added, suggesting that Gov. Clinton's policy on banking would not necessarily be guided by the views of either Rep. Kennedy or Acorn.

Arkansas Bankers Like Him

In the governor's home state, bankers haven't been turned off by the campaign rhetoric. From his chief of staff, former banker William R. Bowen, to his banking commissioner, who worked in the industry for 44 years, Gov. Clinton appears to have won the hearts of his state's bankers.

Despite his call for restraints on credit card rates, he is better remembered by Arkansas bankers for his efforts to modernize Civil War-era laws that set a strict ceiling of 10% on all loan rates.

Mr. Bowen, former chairman of First Commercial Bank, Little Rock, said he was first attracted to the governor because of his willingness to take on the usury ceilings during his first term.

Some Arkansas bankers go so far as to say a Clinton administration might bring some relief from the growing burden of regulation, which they view as a hot button.

"He's not as interested in the paper trail as in getting something done," said William H. Brandon Jr., president and chief executive officer of First National Bank of Phillips County, Helena, Ark.

Mr. Brandon, who was chairman of the Arkansas Economic Development Commission under Gov. Clinton, is in line to become president of the American Bankers Association next year.

The banker recalls liking Gov. Clinton from the start.

"He was just so obviously such a bright, well-educated person, so much more so than the other candidates," Mr. Brandon said. And the governor went out of this way to establish close ties to the industry, the banker added.

Recognizing Banks' Role

"Through the years, the always recognized that banks have a central role in the economy," he said. "So we always had a good working relationship."

Mr. Brandon also argued that Gov. Clinton's views on community reinvestment are compatible with those of the American Bankers Association.

South Shore Bank, he points out, is a small, private-sector institution that has voluntarily developed a specialty in inner-city lending. The ABA's current policy calls for creation of an institute to provide information to banks interested in lending to low-income areas.

"South Shore has developed a technique for pooling private dollars and foundation dollars," Mr. Brandon said, making it a much more appropriate vehicle for aiding distressed areas than a commercial bank would be.

Easing CRA Pressure?

A network of community development banks might also ease pressure in Congress for tougher CRA standards, he said.

If the Arkansas experience is any guide, Gov. Clinton is likely to take an active interest in his development-bank proposal.

After returning from his Chicago trip, he turned his attention to Arkadelphia, a small town in a rural county of 20,000 persons that had been devastated by the loss of three major employers. They took as many as 1,500 jobs from the area, leaving it with the state's highest unemployment rate.

"Bill twisted a lot of arms of local investors to get [the community development bank] going," said George P. Surgeon, a former South Shore officer who moved to Arkansas to run the institution, Southern Development Bank.

The governor's wife, Hillary, also took an active interest, and retains a seat on the bank's board.

Defends Deposit Insurance

While Gov. Clinton has never been clear about how he would deal with the problems that continue to trouble the banking and thrift industries, he has taken pains to distinguish between the two sectors. He has said the federal government must stand behind the deposit insurance system, even if it means putting up tax dollars.

"You keep in mind that what the taxpayers were asked to bail out was the guaranteed deposits, so the taxpayers were, in effect, bailing out each other," he said last week in a public television interview with Bill Moyers.

In the thrift industry, Gov. Clinton said, "there were people who made a killing ripping off the depositors." But "the banking system, it's a different situation," he added.

"There are some problems in some banks because of the regional depressions," Gov. Clinton said, "and there have been some mistakes made, but the scope of the problem I don't expect to be nearly as great."

Fresh Scrutiny Urged

Democrats with industry ties say bankers ought to take a fresh look at the Democratic standard-bearer and consider whether they might be better off with a change in leadership.

"He has taken a view that the anticompetitive things we have saddled ourselves with ought to be moved aside," said Charles T. Manatt, a former banker and onetime chairman of the Democratic National Committee.

Cantwell C. Muckenfuss, a Democrat who has held a number of senior posts in bank regulatory agencies, said the industry would have a better chance of winning modernization with a President Clinton "who can work with the Congress better."

More important, he said, bankers ought to rephrase the question Ronald Reagan posed during his first campaign: "If you ask about the banking system, |Are you better or worse off than you were 12 years ago?', the answer sort of leaps out at you."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.