Colorado Grants 10 Branches, Only One in a Poor Area
An unintended effect of a liberalized branching law in Colorado may allow some banks to score Community Reinvestment Act credit without directly serving low-income communities.
On May 31, Colorado loosened what had previously been one of the most restrictive branching laws in the nation. The new legislation permits Colorado holding companies to convert most of their subsidiary banks and all newly acquired banks into branches over a period of time.
Provision Allowed Branches
New branches cannot be opened on an unrestricted basis until 1997. But one provision of the law let 10 financial institutions open new branches immediately provided they were in "economically depressed areas."
As initially reported in the Denver Post, only one of the 10 banks qualifying actually placed its branch in an inner-city neighborhood, which is a major focus of community reinvestment activities.
The other nine banks opened outposts in wealthy parts of economically depressed counties or in ghost towns that are being primed for new recreational activities.
According to the Denver newspaper, the state law was meant to augment the federal Community Reinvestment Act.
In perhaps the most conspicuous moves, two banks set up branches in Central City and Black Hawk, former silver mining towns that soon will host gambling casinos as a result of recent legislation.
Another bank opened a branch in a middle-class neighborhood of Pueblo, a county that was designated as impoverished. Six other banks opened branches in rural areas with sparse populations.
Criteria Said to Be Met
Only Colorado National Bankshares Inc. opened a branch in a traditional low-income community - Five Points, an inner-city neighborhood in Denver, the bank company's home base.
Colorado Banking Commissioner Barbara Walker said all the branch applications met two of the three criteria in the law's definition of serving "economically depressed" areas. Those criteria involve unemployment count, per capita income, and assessed value of residential and commercial property.
"If that's a CRA effort, I'll be damned," said James L. Basey, executive vice president of Colorado National.
Daniel Pearson, director of bank supervision and analysis at the Office of the Comptroller of the Currency in San Francisco, said the Colorado banks wouldn't necessarily earn CRA credit from federal examiners by locating branches in "economically depressed" areas as defined by state law.
"You'd have to explore it further," Mr. Pearson said.
The new law, the banking commissioner responded, required that applications be approved from the first 10 banks that applied and technically met the criteria. "It's ironic, and some people consider it unfortunate," Ms. Walker said, "but it's just the way the chips fell."