Looking back at the unrest that swept cities such as Ferguson, Mo., over a year ago, a takeaway in the banking industry was that the dearth of branches contributed to simmering tensions.
The scarcity of branches in low-income neighborhoods reduces access to mainstream financial services and contributes to cycles of poverty, a commission that studied the incident said. Yet many banks are reluctant to make the investment as more customers demand digital products and the pressure to lower credit risk remains powerful.
As a result some unlikely partnerships are being born. U.S. Bancorp said last month that it spent $1.3 million to fund the construction of two new branches in low-income neighborhoods around St. Louis — including one near Ferguson. The new branches are owned by the St. Louis Community Credit Union, a mission-driven lender in the area.
Across the industry, a number of big banks have recently partnered with small credit unions to expand services to the underbanked. For instance, Bank of America last year pledged $10 million to the National Federation of Community Development Credit Unions. Citigroup this summer said it would give certain minority-owned credit unions and banks free access to its ATMs.
To be sure, the bank moves aren't selfless. For instance, U.S. Bancorp's project will help lower its tax bill and earn it Community Reinvestment Act credit.
But such projects are highly welcomed not only because of the symbolism but the real services that storefronts can provide to underserved customers.
"In low-income communities, you have to have a face," said Pablo DeFilippi, a senior vice president at the comment development credit union group.
Though small banks and credit unions often feud over the fairness of the latter's federal-income-tax exemption, DeFilippi said that big banks and credit unions are common allies on community development issues. Yet he said he has never seen the two groups come together to build branches.
For Minneapolis-based U.S. Bancorp, the branch partnership makes sense.
Though St. Louis is one of its key markets, the company decided against building new branches of its own, to avoid redundancy in its footprint. It also does not view the credit union — a community development financial institution — as a threat to its business.
"We don't see it as competition, but more of a complementary service," said Steve Kramer, a senior vice president at the $438 billion-asset company.
Notably, the U.S. Bancorp project comes almost exactly a year after the release of a high-profile report examining inequality around St. Louis.
The report from the 16-member Ferguson Commission focused on issues such as unemployment and racial tensions. The group was appointed by Missouri Gov. Jay Nixon, following the shooting of Michael Brown, an unarmed black teenager, by a white police officer. The violent protest that followed captured national attention and has been followed by similar incidents across the country, including unrest this week in the Charlotte, N.C., area.
The report provided recommendations for financial reforms, including ensuring banks have incentives to invest in CDFIs.
"What came of it was [feedback] that CRA is in many regards broken," Patrick Adams, chief executive of the $250 million-asset St. Louis Community Credit Union.
Banks often look for ways to "check a box, without having impact," said Adams, who took part in a panel that examined economic disparities. He noted that there are no CDFI banks in the city.
Adams praised U.S. Bancorp for addressing "financial services deserts" across the region.
As part of its investment, U.S. Bancorp will help the credit union expand in economically distressed neighborhoods, using funding through the New Markets Tax Credit program.
U.S. Bancorp did not invest directly in the construction projects. Rather, it worked through two economic development agencies in the region, which act as intermediaries in the federal program.
Under the program, U.S. Bancorp will receive a $1.5 million credit toward its federal tax bill, taken over a seven-year period.
The investment has helped St. Louis Community Credit Union reconstruct a demolished branch once owned by Gateway Bank, a $29 billion-asset, a black-owned bank failed during the financial crisis.
The Gateway branch — which opened earlier this year — is in North St. Louis, near Ferguson. The project also received support from the banking arm of TIAA, among other institutions.
U.S. Bancorp's investment is also financing the ongoing construction of a new branch in Benton Park, near downtown. The location will offer services ranging from payday loan alternatives to financial coaching.
Overall, St. Louis Community Credit Union will operate 15 locations once the project is complete.
"We look at this as a way to invest in low-income communities," Kramer said.
Additionally, U.S. Bancorp invested $2 million, through the same tax-credit program, to build a new community center on the site of a gasoline station that burned during the Ferguson protests.
How other small banks in the region will respond to a big bank building credit union branches remains an open question.
Community bankers contacted for this story did not respond for comment.
Still, it is notable that in only one other bank — the $24 billion-asset Commerce Bank — operates a branch in the same ZIP code as the new Gateway location, according to the Federal Deposit Insurance Corp.
"In the field where we work, we see more opportunities for collaboration," DeFilippi said, noting that he hopes more big banks will take a cue from the St. Louis project.