Catherine P. Bessant of Dallas is the community investment executive for NationsBank. On May 11 she testified before Congress about the challenges facing banks that want to serve the inner cities. An excerpt from her testimony follows, beginning with a discussion of the Home Mortgage Disclosure Act.

The HMDA results reflected a number of factors which impact lending decisions. The primary reasons for turning down credit applications were identified as credit and employment history, value and condition of collateral, and debt-to-income ratios.

We do believe that the perception of banking practices in this country is one of the components of an atmosphere that contributes to racial tensions.

I emphasize the word "perception," because we firmly believe the perception of banking practices does not accurately reflect the reality.

We Want to Lend

Let me explain. A lot of people have concluded that widespread racial bias permeates this country's banking system.

On the surface, the HMDA results would tend to support that perception. However, the evidence indicates that the issues which limit credit availability among our nation's minority population are socioeconomic rather than racial in origin.

Furthermore, we at NationsBank feel it is our duty to overcome and help eliminate those socioeconomic factors and make capital readily available for all segments of our communities.

But as we attempt to live up to that responsibility, we face some difficult challenges.

One major hurdle we believe limits prosperity and growth among our nation's minority population and limits the ability of banks to use lending to help solve this problem is the demographic reality in our region.

For example, we have found that unacceptable credit history stymies potential African-American borrowers twice as much as potential white borrowers. Further, we have found that net worth and disposable income levels vary tremendously by race within similar categories.

Mixed Signals from Agencies

Another challenge we face is a conflicting mandate from our regulators.

Regulators hold us to strict credit policy standards which require us to make strong, profitable loans. On the other hand, we are charged to be (and I might add, want to be) innovative and flexible in our lending efforts under the Community Reinvestment Act.

However, the loans we make and need to make to low- and moderate-income customers don't always meet the standards of our regulators. Obviously, these conflicting messages encourage us to take fewer chances on potential customers.

Credibility is the third challenge we must deal with every day. People in low-income neighborhoods simply don't believe we want their business.

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