The New York Times today includes an article about the stability of small community banks at a time when high profile troubles at Bank of America and Citigroup, as well as actual collapses of other banks, have helped to rock the nation’s economy to its foundation.
Most of the country’s 7,630 community banks stayed away from subprime mortgages and complex financial products, according to the Times, even if it meant their profits only grew at three to four percent per year. It was slow and steady growth, compared to the highflyers, but these banks are still solid.
Despite their profitability, they feel as though their industry is being painted with a broad brush. “The media, Congress, the president, everyone just keeps saying ‘the banks, the banks, the banks,’ like we’re all the same thing,” said the president of an 11-branch bank in northwest Indiana in the Times article. “Well, we’re not all the same thing.”
The same can be said for the many community development financial institutions who provide money to promote home ownership and small business development in low-income communities. I wrote about why the community development banks have survived the financial crisis a few months ago. Many of the reasons given to me then, by people such as Mark Pinsky, president of Opportunity Finance Network, an association of community development financial institutions (CDFIs) based in Philadelphia and Saurabh Narain, chief fund advisor for the National Community Investment Fund, a Chicago-based nonprofit private equity fund that invests in CDFIs, were echoed in the Times article.
Despite investing in what the big banks would consider high-risk borrowers, CDFIs have continued to do well because their focus remains on relationship lending. Sure many, if not most, of their borrowers wouldn’t qualify for loans from larger institutions. But the bankers at small credit unions, for example, know the people and not just the paperwork.
Their conservative approach to a relatively risky population continues to be one of the pillars of socially responsible investing.