ADEQUATE TO REDRESS THE IMBALANCE OF CAPITAL, CREDIT, AND MANA- OF THE REGULATORY STRUCTURE WHICH GOVERNS OUR BANKING SYSTEM. 1 Introduction Woodstock Project is the program arm of the Scheinfeld Foundation, and was established in 1973 with a mandate to do research about alternative public policies which would address the dual problems of discrimination in housing and inSince that time it has worked with other institutions--such as the vestment. Center for Urban Studies--to develop a clear analysis of how the process of disinvestment from the city and corresponding investment in the suburbs works: Who are the actors that channel capital out of cities? What constraints and incentives lead them to do so? What alternative structures can be devised to reverse and/or ameliorate this trend? The current research project on the relationship of banking structure and the public interest began in earnest early in 1975. In January of that year, the Project sponsored an invitational conference on the subject entitled, "The Public Interest Implications of Branch Banking In Illinois." The primary assumption of those who attended was that many communities in Illinois do not have adequate public and private credit available to their residents and institutions to insure their viability. Two conclusions emerged from the conference: (1) that the current banking structure is not adequate to guarantee credit availability to most inner-city areas; and (2) that the cost to the public of continued failure to do so was rapidly creating a financial crisis for the city and the state due to rising expenditures for welfare, unemployment and municipal services. Chicago, like other urban centers, has become the repository for the region's working poor, minorities, and economically dependent. According to 1970 census data, Chicago's population was 34% non-white. While the Cook County geographic area enjoyed an overall 17% increase in employment from 1957 to 1972, Chicago lost 4% of its jobs during the same period. In 1969, the household income of 60% of Chicago's units was less than $10,000 while the figure was only 36% in the suburbs. Approximately 19%, or about one out of every five Chicagoans is on welfarel (see Map 1). Between 1960 and 1970, the median home value (figured in 1970 dollars) in Chicago dropped by 8.2% while in the suburbs it increased by 5.2%. The City of Chicago Department of Development and Planning estimates that by 1975 the city was losing housing units at the rate of approximately 19,000 per year. (See Map 3). It is against this backdrop showing a major urban center losing its human, housing, employment and financial resources that the increasing conflict between lenders and community groups over the question of redlining has taken place. As the debate continues, data collected as a result of new city and state disclosure laws makes it evident that lenders and particularly commercial banks collecting far more deposits from inner-city residents than they are returning to those residents in the form of loans. -- are In addition, it is clear that although savings and loans and neighborhood banks have been the primary target of anti-redlining groups, it is for the most part in fact Chicago's large, Loop banks that have the lowest loan/deposit ratio in the neighborhoods. (See Tables I, II). The most recent disclosure data col lected by the State indicates, for example, that not only do the five largest Loop banks have only 3.1% of their total assets in housing loans, but that in addition, 84% of those loans were made in the suburbs. (See Table III). One of the main responses of lenders to community groups who push for a greater return on their deposits in the form of loans to their areas is that the risks are too high to lend in inner-city neighborhoods. Suburban loans, on the other hand, are perceived by lenders as being a sound investment. We have examined the default rate of those loans made in accordance with given banks' present lending policies, and note that present assumptions about suburban loans being low risk bear further examination. ī |