WASHINGTON - Arguing that only competition can increase community reinvestment, a prominent group of housing activists has thrown its support behind Wells Fargo & Co.'s hostile bid for First Interstate Bancorp.
The San Francisco-based Greenlining Institute told federal regulators in a Dec. 20 letter that the new Wells Fargo could compete with BankAmerica Corp. for top Community Reinvestment Act honors.
"Wells Fargo's commitment to be the 'unrivaled CRA leader' in the West is just what is required to create CRA competition," the group said. "It is unclear that First Bank's friendly takeover of First Interstate could produce this type of result."
The Greenlining Institute is embarking on a new strategy with this letter. Community groups usually fight mergers that remove regional banks from the scene, arguing that low-income people suffer when competition is reduced.
"The Greenlining Institute's logic is new to me," said John Taylor, president of the National Community Reinvestment Coalition. "Where we look for competition is on all levels, whether it be big banks, medium banks, or community banks. Where there is competition in the market, we think the consumer is better served."
Bruce Marks, executive director of the Neighborhood Assistance Corporation of America, said bigger isn't necessarily better.
"Just by virtue of having two institutions of the same size doesn't mean the other bank is going to be committed to revitalizing neighborhoods," he said.
But Robert Gnaizda, the group's general counsel, said that only megabanks can offer truly innovative products. As proof he pointed to NationsBank Corp.'s announcement this week that it would introduce a no- closing-cost, no-down-payment mortgage for low-income borrowers.
"Leaders feed off other leaders, and NationsBank's decision will be followed elsewhere," Mr. Gnaizda said.
Benefits from competition will come quicker if two institutions are competing on the same turf, he said.
"As Wells builds a name for itself, Bank of America will unveil more new products," Mr. Gnaizda said. "Two competitors will have an exponential impact for small-business lending and economic development projects."
Hugh D. Loftus, senior vice president at First Interstate, said the Greenlining Institute was taking the wrong approach to competition. Innovative products are more likely to hit the market if more banks are fighting for business, he said.
"Competition among three is clearly bigger than competition between two, especially when the two are big, because bigness builds remoteness," Mr. Loftus said.
Bank of America spokesman Russ Yarrow said the bank isn't afraid of having to compete for top CRA honors in California.
"The more players you get in the market, the better off we are all going to be," he said. "We think it is great."
Greenlining's letter, which was sent to the Federal Reserve Board and the Comptroller of the Currency, also lauded other parts of Wells Fargo's offer.
It particularly praised the commitment of $25 billion to small-business lending and of $8.5 billion to economic development projects. "This is a key component to the rebirth of inner cities," the group said.
