Comptroller of the Currency Eugene A. Ludwig said he wants banks to make more equity investments in small businesses in low- and moderate- income areas.
"I hope we are at the beginning of an explosion of interest in these vehicles," Mr. Ludwig said at a recent meeting of bankers and minority business owners in Washington.
The meeting was the first in a series Mr. Ludwig plans to hold across the country in the next year to discuss minority business owners' access to financing.
Traditionally, bank community development companies have not made equity investments except in companies that develop affordable housing.
Ron Walker, a Washington accountant who attended the meeting, said under-capitalized minority businesses in the nation's capital need equity financing.
"You have venture capitalists that don't touch small businesses, and on the other extreme you have banks that won't touch small business," he said. "They are just beginning to fill the void."
Mr. Ludwig touted BankBoston Corp.'s community development initiative as an example for other banks interested in expanding their financing options for small business.
BankBoston recently formed a community development company to make equity investments and loans to small businesses in New England and Florida.
"I hope other banks do the same thing," Mr. Ludwig said.
BankBoston's unit invests in companies with high growth potential and sales of more than $500,000. It lends $5,000 to $5 million with variable repayment terms.
The banking company has said it hopes its innovative small-business efforts will gain it Community Reinvestment Act credit under revised regulations that take full effect in July.
The Boston bank is taking advantage of a change in regulations that lets banks use community development corporations to make equity investments that would otherwise be prohibited by law.
Other bankers at the Washington meeting said their banks need to seek more creative means to direct money to business in low- to moderate-income areas.
"Unless we as bankers are willing to do some nontraditional financing, we will never get the dollars into the community," said Lennie Springs, senior vice president in First Union Corp.'s community reinvestment division.