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Transcript of CENTER FOR COMMUNITY CAPITALISM
CENTER FOR COMMUNITY CAPITALISM
ww
w.c
cc.u
nc.
edu
THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
The Center for
Community Capitalism
Evolution of Banking & Access to Financial Services in the U.S.
Prepared for presentation at
World Bank Conference Broadening Urban Access to Financial Services
Cartagena, Columbia
byDr. Michael A. Stegman
Center for Community CapitalismUniversity of North Carolina at Chapel Hill
April 2004
CENTER FOR COMMUNITY CAPITALISM
ww
w.c
cc.u
nc.
edu
THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
Why policymakers care whether people are banked
• U.S. policy moving toward asset-based social policies—rewarding work, incentives for taking more responsibility for financial future & retirement security;– People with bank accounts are more than twice as likely to
hold savings, as are people who are unbanked, and are more likely to add to their savings on at least a monthly basis.
– Wealth disparities are greater than income disparities & growing;
– The bottom 90 percent of Americans earn 60 percent of all income,
– but own less than 30 percent of all net worth– and less than 20 percent of total financial assets.
–
CENTER FOR COMMUNITY CAPITALISM
ww
w.c
cc.u
nc.
edu
THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
Why banks should care about increasing financial access
• Strong link between account ownership and use of bank credit. Lower-income families with checking, savings, or money market accounts are six times as likely as to have credit cards and are more than twice as likely to have a mortgage.
• Nearly 60 percent of all first-time buyers between now and 2010 will be young minority & immigrant families.
• In practical terms, big part of this growing market segment are not part of the financial mainstream--more than 40 percent of unbanked low- and moderate-income African American and Hispanic renters are unbanked..
CENTER FOR COMMUNITY CAPITALISM
ww
w.c
cc.u
nc.
edu
THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
Banking status important to wealth building
– Wealth disparities in U.S. are greater than income disparities & growing;
– The bottom 90 percent of Americans earn 60 percent of all income,
» but own less than 30 percent of all net worth» and less than 20 percent of total financial
assets. – People with bank accounts are more than twice as
likely to hold savings as are people who are unbanked, and are more likely to add to their savings on at least a monthly basis.
CENTER FOR COMMUNITY CAPITALISM
ww
w.c
cc.u
nc.
edu
THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
Cross-Selling Potential as the Unbanked Become Banked
0%
10%
20%
30%
40%
50%
60%
Credit card First mortgage Vehicle loan
Actual Rate, Banked
Actual Rate, Unbanked
Estimated Rate as Unbanked become Banked
Source: Jeanne Hogarth, Federal Reserve, 8/1999
CENTER FOR COMMUNITY CAPITALISM
ww
w.c
cc.u
nc.
edu
THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
Enormous Growth in Immigrant Purchasing Power
1990-2000Category 1990
Buying Power
(billions)
2001
Buying Power
Percent Change
Market Share 1990
Market Share 2001
Minority Total
$439.9 $860.6 95.6% 10.6% 12.2%
Black $307.8 $572.1 85.9 7.4 8.1
Amer. In. $ 19.2 $ 34.8 81.0 0.5 0.5
Asian $112.9 $253.8 124.8 2.7 3.6
Hispanic $207.5 $452 118.0 5.0 6.4
White $3,715 $6,219.8 67.4 89.4 87.8
Total all races
$4,154.9 $7,080.4 70.4% 100.0% 100.0%
CENTER FOR COMMUNITY CAPITALISM
ww
w.c
cc.u
nc.
edu
THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
A Tale of Two Emerging Markets
Population
Households
Average disposable household income
Total household income
Consumer spending power
Spending power/sq. mile
Proximity to large markets & clusters
Average education level
Currency stability
Government stability
Stable, known legal system
American business norms and language
America’s Inner Cities Mexico
25 million
7.7 million
$23,8881
$184 billion
$85 billion
$43,000,0002
High
Medium
High
High
High
High
1 million
18.2 million
$11,240
$205 billion
$72 billion
$96,000
Low
Low
Low
Low
Low
Low 1 Sim
ple
ave
rage
of h
ouse
hold
dis
posa
ble in
com
e fo
r th
e in
ner
citie
s of
Atla
nta
, Bos
ton
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cago
, Mia
mi,
New
Yor
k,
Oak
lan
d
2 Ave
rag
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inn
er c
itie
s o
f Atla
nta
, Bo
ston
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cago
, Mia
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nd O
akla
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if H
arle
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$34
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clu
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, the
ave
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e of
the
six
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wo
uld
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Not
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exi
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ata
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So
urce
s: IC
IC, B
ost
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sulti
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roup
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Latin
Am
eric
a
CENTER FOR COMMUNITY CAPITALISM
ww
w.c
cc.u
nc.
edu
THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
Technology is a driving force in banking revolution
• full service branch transaction $1.07• telephone transaction
$0.54• ATM transaction $0.27• on-line transaction $0 1.5
CENTER FOR COMMUNITY CAPITALISM
ww
w.c
cc.u
nc.
edu
THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
100 Largest Central Cities: ATMs Per Capita by Neighborhood Location & Household Income, 2002
(ATM addresses per 10,000 people)
17.3
7.6 6.9
28.7
8.2 7.6
INNER RING MIDDLE RING OUTER RING
Tract Location
ATM
Add
ress
es p
er 1
0K P
op
Low Income (<80% AMI)
High Income (80+% AMI)
CENTER FOR COMMUNITY CAPITALISM
ww
w.c
cc.u
nc.
edu
THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
The rise of fee-based banking has potential to convert unbanked into profitable customers
• No longer do banks make most of their money from the interest spread.
• Non-interest revenues, particularly fee income, is driving bank income.
– Bank fees in U.S. accounted for 44% of net operating revenues for commercial banks in 1999;
• ATM surcharges generate $2 billion in revenues
• bounced check fees generated $6 billion profits.
• Banks starting to charge for over-the-counter (teller) transactions;
• A global phenomenon – India, Hong Kong, New Zealand, Canada, Thailand.
CENTER FOR COMMUNITY CAPITALISM
ww
w.c
cc.u
nc.
edu
THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
Same technology driving banking is driving changes in social safety net delivery system
• A Revolution in delivery of means tested benefits– EFT’99 --Beginning 1999, federal benefit recipients start receiving benefits by direct
deposit—originally mandatory, now voluntary;– By end of 2002, food stamps had to be delivered electronically;– More than 35 states have added distribution of welfare benefits to the magnetic
swipe card used to distribute food benefits.
• Treasury’s First Accounts initiative– On May 2, 2002,Treasury awarded 15 grants totaling $8+ million to financial
institutions to assist 35,500 unbanked low- and moderate-income individuals open accounts.
• Awardees were selected from among 231 applications from 38 states.• Awards go to nonprofits, insured depositories, CDFIs, faith-based
organizations, and local governments to aggregate unbanked market through employers, schools, tax preparation services, day care services.
CENTER FOR COMMUNITY CAPITALISM
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w.c
cc.u
nc.
edu
THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
Electronic delivery of government benefits has hidden policy potential
“EFT could soon result in millions of Americans being brought into the banking system for the first time, and it will change dramatically the way in which they handle money.”
Treasury Secretary, Robert E. Rubin
CENTER FOR COMMUNITY CAPITALISM
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w.c
cc.u
nc.
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THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
Like the non-poor, the poor respond to savings incentives: The Results of the National IDA
Demonstration
• The study included 14 programs and 1,326 participants.
• 90% of participants had incomes beneath 200% of poverty.
• Participants saved an average of $33 per month.
• Poorer families saved proportionately more than higher-income families, and savings was not influenced by income.
• Participants saved regularly--making deposits 7 out of every 10 months--and maximized the benefits of the program, saving 71% of what they could save and have matched.
CENTER FOR COMMUNITY CAPITALISM
ww
w.c
cc.u
nc.
edu
THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
75 years of U.S. banking legislation:the Great Depression
• 1930s – federal deposit insurance (the FDIC) -- $2,500 per account, periodically raised to $100,000 in 1980;
• Congress erects barriers between commercial banking, investment banking, insurance & brokerage services;
• Federal support of residential mortgage market– 1/6 of all U.S. home mortgages refinanced;– introduction of federal home mortgage insurance;– creation of federally supported secondary mortgage
market (Fannie Mae);
• Federal Credit Union Act – federal charters for institutions serving small savers.
CENTER FOR COMMUNITY CAPITALISM
ww
w.c
cc.u
nc.
edu
THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
75 years of U.S. banking legislationcombating redlining & reduced access to credit
The 1960s & 1970s• President Kennedy’s Executive Order on equal opportunity
• The 1964 Civil Rights Act
• Home Mortgage Disclosure Act
– covered institutions publicly report on loan applications, denials, and approvals, by neighborhood
• Community Reinvestment Act (CRA)
– requires insured institutions to meet depository & credit needs of all populations in its service area
CENTER FOR COMMUNITY CAPITALISM
ww
w.c
cc.u
nc.
edu
THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
75 years of U.S. banking legislationthe savings & loan crisis
• 1980 – deregulation of deposit interest rate ceilings, broadening the power of thrifts to invest, raising deposit insurance from $40,000 to $100,000 per account;
• 1989 – the federal bailout of failed savings & loans – between 1980 & 1994, 9% of all insured banks failed;
CENTER FOR COMMUNITY CAPITALISM
ww
w.c
cc.u
nc.
edu
THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
The Community Reinvestment Act
• Passed in 1977, the purpose of the CRA is to fight redlining and increase bank lending in LMI neighborhoods.
• CRA enforced by examining CRA record of banks, issuing written report with rating, & taking account of bank’s CRA record when considering application to expand business.
• Revised in 1996 to be more results-driven.
CENTER FOR COMMUNITY CAPITALISM
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w.c
cc.u
nc.
edu
THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
3 CRA Performance Tests
• Lending test -- evaluates bank’s home mortgage, small business, community development lending;
• Investment test – measures direct equity investment in CD projects;
• Service test – deals with provision of retail banking, and CD services.
• When enacted in 1977, CRA covered 70% of all U.S. savings; today it is only about 30%
CENTER FOR COMMUNITY CAPITALISM
ww
w.c
cc.u
nc.
edu
THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
Federal Reserve Board study of mortgage profitability
• “…lenders active in lower-income neighborhoods and with lower-income borrowers appear to be as profitable as other home purchase lenders.”
• “…We find no compelling evidence of lower income profitability at commercial banks that specialize in home purchase lending in lower income neighborhoods or to lower-income borrowers.”
Glenn Canner and Wayne Passmore, The Community Reinvestment Act and the Profitability of Mortgage-Oriented Banks, March 3, 1997
CENTER FOR COMMUNITY CAPITALISM
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cc.u
nc.
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THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
Community development finance comes of age in the 1990s
The 1990s• Congress funds a network of specialized community development financial
institutions (CDFIs)who specialize in increasing access to financial services and capital
• community development banks (32 depositories with $4+ billion in deposits in 2001);
• community development credit unions (130+)• community development loan funds• microcredit programs• community development venture funds (equity)
• Recent sampling of CDFI performance found that 81 CDFIs managing $1.8 billion in assets provided more than $2.9 billion in financing, with 1.8% cumulative loss rate.
• Annual congressional appropriations to network of 633 certified CDFIs $60-$125 million/year
CENTER FOR COMMUNITY CAPITALISM
ww
w.c
cc.u
nc.
edu
THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
150 years of U.S. banking legislation:financial modernization
1998 Congress comes full circle • Removes barriers enacted in 1933 between
commercial banks, investment banking, insurance & brokerage services – effectively repeals depression era-prohibitions against integration of financial services.
CENTER FOR COMMUNITY CAPITALISM
ww
w.c
cc.u
nc.
edu
THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
Enormous consolidation in the number of banks, if not in banking offices
U.S., 1965-2001
13,544 14,417
8,080
15,872
65,564
7,000
8,000
9,000
10,000
11,000
12,000
13,000
14,000
15,000
16,000
17,000
1965 1970 1975 1980 1985 1990 1995 2001
Year
Inst
itu
tio
ns
14,000
24,000
34,000
44,000
54,000
64,000
Bra
nch
es
Institutions
Branches
CENTER FOR COMMUNITY CAPITALISM
ww
w.c
cc.u
nc.
edu
THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
Amidst consolidation, new banks are still being chartered
140
84
336
609
360182
246
205
331
102
129
0
50
100
150
200
250
300
350
400
450
500
550
600
650
700
1965 1970 1975 1980 1985 1990 1995 2001
Year
Un
assi
sted
Mer
ger
s
0
25
50
75
100
125
150
175
200
225
250
275
300
325
350
375
400
New
Ch
arte
rs
Mergers
New charters
CENTER FOR COMMUNITY CAPITALISM
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w.c
cc.u
nc.
edu
THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
But U.S. still “overbanked” Persons per bank branch in U.S., 2003
3,313
2,019
5,720
0
1,000
2,000
3,000
4,000
5,000
6,000
National Average North Dakota (Lowest)
California Largest
CENTER FOR COMMUNITY CAPITALISM
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w.c
cc.u
nc.
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THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
Two Eras of Bank Failures in U.S.
CENTER FOR COMMUNITY CAPITALISM
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cc.u
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THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISEThe Kenan-Flagler Business School at The University of North Carolina at Chapel Hill www.kenaninstitute.unc.edu
For more information
• Center for Community Capitalism web site – www.ccc.unc.edu.
• Call at 919-962-6849