Inner-city bankers are blasting the Treasury Department for the way it chose recipients of community development lending grants.
Many of the bankers had been counting on the money to start community development banks, while others complained that the Treasury's Community Development Financial Institutions grants went overwhelmingly to established players and did not foster enough new programs.
Some community development banks that got no grants complained that the CDFI fund had changed focus. Its original intent in 1994 had been to spur development bank creation, they said, and it had touted Chicago's Shorebank Corp. as a model.
"I can't fathom how they could have moved so far from the original purpose of the legislation ... that the only two community development banks that opened (since 1994) didn't get funded," said Lyndon Comstock, chairman of Community Bank of the Bay, Oakland, Calif. His own institution and Albina Community Bank in Portland, Ore., which opened in late 1995, are the two new development banks.
"The selection they've come up with is almost entirely geared toward the longest-established institutions," Mr. Comstock said.
Leon Smith, chief executive of Albina, declined to comment. The bank last month started a public offering to bolster its capital, but its organization plan since its beginning three years ago anticipated at least some federal funding.
The concept of the fund began with President Clinton's 1992 campaign, in which he promised federal money to boost the equity and spur creation of inner-city and rural community development banks modeled after Chicago's South Shore Bank. While the money appropriated was much less than the President had envisioned, his idea fomented creation of about a dozen community development banks, some of which are still in organization, in the last four years.
The fund consists of $35 million for development projects by 31 organizations to benefit low-income people.
Four bank companies got about one-quarter of the funding, and six credit unions got another 8.3%. The rest went to community development and microenterprise loan funds, housing organizations, venture capital funds, and other development fund groups.
Kirsten Moy, director of the CDFI fund, noted that just 14 of the 268 grant applications were from community development banks. Other bank companies may have had affiliates that also got money, she said.
"We funded generally one in 10 institutions," Ms. Moy added. "Community development banks did far better than that as a ratio."
The bank companies receiving funding were Detroit Development Bancorp, Douglass Bancorp of Kansas City, Kan., Louisville Community Development Bank Holding Co., and Southern Development Bancorp., Arkadelphia, Ark. Detroit Development and Louisville Community Development are both in formation.
"You really can't argue with the quality" of the 31 recipients, said William Michael Cunningham, who runs Creative Investment Research in Washington, D.C., and was involved in an unsuccessful application by a community development venture capital group.
Applicants had to meet criteria and be able to match CDFI funding. Rejected applicants, if they ask, may be debriefed starting this week about why they didn't get funding, Ms. Moy said.
Community Bank of the Bay had sought $2 million. Meanwhile, it opened last month with $7.5 million of capital and won't be hindered from going forward, Mr. Comstock said.
But banks in their organizing stages, such as San Diego's Neighborhood Bancorp, which requested $3.5 million, could be set back, said president Robert M. McGill.
"We're very disappointed and dismayed," Mr. McGill said. "The fund ... was intended to be equity investments in community development banks. Our expectation was a reasonable one that we would get some level of funding from the CDFI fund."
Now, with $5 million of capital, the institution needs another $1.5 million to meet its Sept. 30 charter deadline. It will continue to seek funding from institutional investors, he said.
Banks that got funding, however, weren't complaining.
Douglass Bancorp got more than $1.7 million of the $2 million it sought. "This is fantastic," said Ronald Wiley, president and chief executive of the $63 million-asset, African-American-owned bank. "This CDFI funding really gives us an opportunity to expand our capacity and become even more active in the market."
