Imagine running a bank in one of America's most blighted communities -- one where three-fourths of the residents are unemployed and where communitY leaders accuse you of bad faith.

These are daily realities for the bankers of East St. Louis, Ill., a once-proud urban community that has been decaying steadily in the shadows of the Gateway Arch.

To make the best of things, three banks with branches in the city and the one bank that still has headquarters there have been working together to make funds available for community development.

Little to Show

But, after three years of monthly brainstorming meetings, the Metro East Lenders Group has precious little to show for its efforts. Formed to pool its resources in making loans, the group has instead found itself chipping away at structural barriers that member bankers liken to the Berlin Wall.

"We could have all kinds of programs from the government, from God, from whoever, and we still couldn't qualify the people for loans," said Delmar G. Tegtmeier, compliance officer at Magna Bank of St. Clair County's East St. Louis branch.

Indeed, the case of East St. Louis illustrates dramatically the kinds of challenges bankers across the country face as they seek to bolster their lending in lower income areas while also keeping their banks financially strong.

Participating in the lenders group are the East St. Louis branches of Magna, First Financial Corp., and First Illinois Bancorp, as well as Union Bank of Illinois, the only bank with headquarters in the city.

Branches of Boatmen's Bancshares Inc. and Mark Twain ancshares nearby in much more affluent Belleville also have signed on.

In addition, an East St. Louis official of the National Association for the Advancement of Colored People and a representative from the State Treasurer's office also are participating.

The four East St. Louis banks are the only reminders of a prosperous era when this city was known as the "Pittsburgh of the West" for its booming economy fueled by steel mills, foundries, and packing houses.

Now, instead of soliciting business from industrial barons, the banks are struggling to counter the fact that their customer base of senior citizens is dwindling by educating first-time homebuyers.

No Qualifiers Yet

So far, the Lenders Group has reviewed six mortgage applicants, none of whom has qualified.

"Sometimes I feel like we have built a foundation on sand," said Robert E. Kassing, chief executive at First Illinois Bank.

"When we first began the lenders group, we thought it was going to be a utopia," said Mr. Tegtmeier. What he could not predict, however, was the bankers' failure get a tax break in their service areas.

The city's 20% tax rate reflects the lack of an industrial or commercial base from which the municipal treasury can draw funds. Because St. Clair County is the city's chief landowner, property owners must bear the burden.

The lenders group ran smack into the tax issue when it initially set out to revitalize a small section of the city. The lenders hoped that by luring residents and businesses into the neighborhood they would provide a magnet for others to follow.

But, Mr. Tegtmeier said, "How in a clear conscience could we bring people into the community knowing they might not ever be able to pay the real estate taxes?"

The lenders group appealed to city leaders to lower tax rates for homeowners.

Abatement Not Much Help

The group saw an opportunity when a state lawmaker from nearby Alton was said to be drafting a tax abatement bill. The lenders lobbied lawmakers to include East St. Louis in the legislation, and the bill was signed into law last year.

Unfortunately, the tax abatements, which apply to residential properties for up to 10 years, cannot be exercised in most of East St. Louis.

The city is designated a tax increment financing zone that prohibits tax abatements. As a result, no housing has been financed -- and the lenders group is still battling with the town's bureaucracy for reform.

"Sometimes I feel like we are just beating our heads against the wall," Mr. Kassing said.

Poor CRA Rating

And the pressure seems to be mounting. Regulators last year gave Mr. Kassing's bank a "needs to improve" rating on its Community Reinvestment Act examination. The other banks, whose holding companies have garnered higher CRA ratings, have not come under the same regulatory fire. But they are feeling the pressure nonetheless.

"It has become at least difficult -- but, typically, almost impossible -- to fulfill the CRA act in a city such as East St. Louis," said Ron Wallace, chief executive of Union Bank of Illinois. Mr. Wallace's bank relocated its headquarters to the nearby suburb of Swansea two years ago when it acquired a bank there.

And the banks have been under pressure from other arms of the government, including the office of State Treasurer Patrick Quinn. "I don't think the banks in the Metro East area have done enough in East St. Louis -- we have got to kick them a little bit," said Mr. Quinn.

Accused of Racial Bias

The bankers, virtually all white, are also the targets of community leaders. In a city that is 98% African-American, they are frequently accused of racial bias in lending, though examiners have found no evidence of discrimination. Of the lending group's banker members, only Willie Nelson, branch manager of First Financial, is black.

This has led to cynicism among leaders of the black community.

The Rev. Johnny Scott, president of the East St. Louis chapter of the NAACP, and a nonvoting member of the Lenders Group said: "The only thing blacks seem to be good enough for is to put our deposits into those banks and a few loans where there is the possibility of some money to be made off of us."

Mr. Kassing is frustrated by attitudes like this. "Since we are all white males, if we say something, who the hell is going to listen to us? Sometimes that creates problems."

Developments Raise Hopes

Many East St. Louis residents pin their hopes on such developments as the extension of the Gateway Park from Missouri to the Illinois side of the river.

A commuter rail project will connect the city to St. Louis, and the Casino Queen gambling boat is scheduled to open soon on the East St. Louis waterfront, bringing additional tax revenues and possibly jobs to the city.

But the bankers of East St. Louis, having seen hopes rise and plunge like the waterline of the Mississippi, are guarded about the city's near-term prospects. Ultimately, they agree that traditional lending will not save the city from further decline and that innovative solutions need to be found.

"I will be here struggling till my last day trying to overcome these problems," said Mr. Wallace.

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