This month Diana L. Taylor, the New York State banking superintendent, designated part of northern Harlem as a "banking development district" under a program meant to stimulate development in low-income communities.
One immediate beneficiary will be Carver Federal Savings Bank, which operates the only branch in the district.
Under a 1998 law, banks and thrifts in communities the state designates as underserved are rewarded with millions in state and municipal deposits, which the $650 million-asset Carver intends to use to make more loans - and generate more profits.
The branch is Carver's third in a banking development district. A branch in Queens was designated as a banking development district in 2004, and in 2001 Carver opened a branch on Malcolm X Boulevard in Harlem, largely to take advantage of the law that created the districts. That branch received $50 million of state deposits and another $5 million from New York City.
Deborah C. Wright, the savings bank's chairman and chief executive officer, said the deposits "eased the up-front pressure" that comes with opening a branch. Even in more affluent neighborhoods, most new branches can take two to three years to break even, but the Malcolm X Boulevard branch was profitable "right away," she said.
New York is the only state that awards large deposits to banks and thrifts that open or stay in neighborhoods that other banks fled long ago. Since Gov. George Pataki signed the law, the state has established 18 banking development districts, primarily in New York City, but also in Buffalo and some smaller upstate communities.
Carver, a black-owned thrift established in 1948, has a history of serving low-income communities. Ms. Wright said that the banking development district designation is helping to stimulate economic activity in these neighborhoods by providing banks with funds that would otherwise take years to accumulate.
The deposits should also help accelerate Carver's growth, Ms. Wright said. Though Carver has "more objectives than just making money," its first responsibility is still to its shareholders. "We're a publicly traded company. Shareholders would not be interested in social service."
Andrew Dorn, the president and CEO of Greater Buffalo Savings Bank, takes a different view of the districts.
Its branch in a district in Buffalo is a way to provide a low-income neighborhood with financial services and jobs, not something that will drive the savings bank's earnings, Mr. Dorn said.
Since it opened in 1999 the branch has received about $35 million of state deposits, but only about $5 million from the community.
"Quite frankly, very few of the people who live in that community have money to deposit," he said.
Banks that receive state funds have to return the money eventually, so they would need to bring in tens of millions of dollars from the community to remain profitable. Still, Mr. Dorn said his $770 million-asset savings bank is planning to open another branch in a banking development district in Buffalo this summer.
"The banking development districts gives us a chance to help the community without losing money," he said.
When Carver opened the Malcolm X Boulevard branch, it set out to raise $30 million of deposits from the community in its first three years.
The savings bank missed the target date by two years - largely on account of the Sept. 11 attacks, Ms. Wright said - but by Sept. 30, 2005, the branch had taken in more than $29 million from the community.
Under its agreement, Carver will return the $50 million to the state in September. Ms. Wright said that the Malcolm X branch has enough deposits to be profitable without the state's help.
"The deposits were really a bridge for us to give the community time to catch up with the branch," she said.
Ms. Taylor said that banking development districts were not created to force banks to choose between making money and serving the underbanked.
"From a regulatory standpoint, I don't want branches that are not going to be profitable. It's not good from a safety-and-soundness perspective," she said.
In New York City, at least, Ms. Wright said Carver can do good and do well. The improving economic conditions in the inner cities create opportunities for both residential and commercial lending, she said.
"The inner city is booming. There is a lot more business than just consumers," she said. "You have to have the fundamental belief that the neighborhood will evolve."
