COMMUNITY REINVESTMENT ACT COMPLIANCE: NEW YORK CITY BANKS MONDAY, MARCH 29, 1982 HOUSE OF REPRESENTATIVES, COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE COMMITTEE on Government OPERATIONS, New York, N.Y. The subcommittee met, pursuant to notice, at 9:35 a.m., at 26 Federal Plaza, room 305, New York, N.Y. Present: Representative Benjamin S. Rosenthal (chairman of the subcommittee) presiding. Also present: Peter S. Barash, staff director; and Theodore J. Jacobs, chief counsel. OPENING STATEMENT OF CHAIRMAN ROSENTHAL Mr. ROSENTHAL. The subcommittee hearing will be in order. Today, the Commerce, Consumer, and Monetary Affairs Subcommittee begins an inquiry into compliance, by some of the Nation's major commercial banks, with the Community Reinvestment Act of 1977 and the enforcement of that act by the Federal banking agencies. The Community Reinvestment Act imposes on regulated financial institutions an affirmative obligation to help meet the credit needs of the local communities in which they are chartered, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of such institutions. This hearing will examine whether the vast sums on deposit in New York City's major banks, much of it derived from the hundreds of branches these banks maintain in the boroughs, are sufficiently returned to the community in the form of housing, small business, and consumer loans. The subject banks at today's hearing, Chase Manhattan, Citibank, Manufacturers Hanover, and Chemical, are among the largest and most successful banks in the world. Individually and collectively, they extend billions of dollars in credit throughout this country and abroad. While we recognize the national and international character of these institutions, the specific community they are charged with serving by the Community Reinvestment Act is New York City and its surrounding area. This hearing and future hearings in Washington will examine whether the substantial credit and investment capital needs of the boroughs of the city of New York are being neglected because of the billions of dollars in foreign and domestic loans these banks are making elsewhere for (1) corporate mergers, condominium and cooperative conversions, and for other business and financial activities. The Community Reinvestment Act was enacted to deal with the problem of redlining, the refusal of banks to make loans in lowincome neighborhoods, thereby contributing further to the deterioration of those areas. While some progress has been made against redlining, a great deal remains to be done to insure that the credit needs of communities are adequately served by the financial institutions in those communities. Today, the committee will explore whether the Community Reinvestment Act is working in New York City. Our first witness is Mr. Roger Hayes, who is associated with the New York Coalition Against Redlining. Mr. Hayes. STATEMENT OF ROGER HAYES, NEW YORK CITY COALITION AGAINST REDLINING Mr. HAYES. Thank you. Congressman Rosenthal and other Members of Congress, good morning. My name is Roger Hayes and I am employed by the Peoples Housing Network. For the past 41⁄2 years I have served as coordinator for the New York City Coalition Against Redlining, CAR. CAR is a coalition of neighborhood groups and church groups from about 20 neighborhoods in New York City. We have worked to organize citizens to demand a greater share of reinvestment by financial institutions into low- and moderate-income communities. Some of the campaigns which CAR has organized include: The fight to save Federal and State mortgage disclosure regulations from being legislated out of existence; Lobbying for the first New York State law specifically outlawing geographic discrimination by lending institutions; Attending hearings and providing testimony to Federal and State regulators when the Community Reinvestment Act regulations were being formulated; Advocating stricter enforcement procedures by the Federal and State bank regulatory agencies; Lobbying for greater consumer protection provisions to be included in the New York State Omnibus Bank Act of 1980; And advocating greater allocations of the State of New York Mortgage Agency (SONYMA), to neighborhoods that are most in need of lower rate fixed-term financing. CAR has organized letterwriting campaigns and demonstrations, conducted public hearings, supported challenges to bank branch applications under CRA, lobbied in Albany and Washington, all of the legal means available to fight for greater investment benefiting residents of low- and moderate-income neighborhoods. We believe the Community Reinvestment Act is a very good law. Because of CRA, many neighborhood groups have been able to bring pressure on their local banks to increase lending in their neighborhoods. This was particularly true during 1978 and 1979 when interest rates were still somewhat affordable. Unfortunately, many of these positive achievements were difficult to attain after the fall of 1979 when Paul Volcker, Chairman of the Federal Re serve Board, began his drive to bring down inflation by driving interest rates to record high levels. As you are already aware, high interest rates have caused a tremendous depression in the entire housing industry. And nowhere is it more severe than in many of New York's low- and moderateincome communities. The savings banks and savings and loan associations have been undergoing many difficulties of their own during these past few years, as more and more depositors withdraw their savings in order to invest in money market funds. Because of the problems of the savings banks, we in CAR have begun to look more and more at the commercial banks for the necessary reinvestment into our neighborhoods. The four banks appearing before the subcommittee today are four of the largest financial institutions in the entire Nation. Their billions of dollars in assets are largely the result of the millions of New York area residents who have deposits with these banks. A recent article in last week's Gannett Today newspaper reports that banks made record high profits during 1981, when many businesses and industries were undergoing severe recession. We feel these banks have a special responsibility to reinvest a portion of their huge earnings back into our neighborhoods, both because of their size and tremendous profits, and also, because they are, in general, in much better economic shape than the thrift institutions. Our experience with these banks in trying to get more of their dollars invested in our neighborhoods has not been encouraging, particularly in meeting certain credit needs. Obviously, some have done more than others and I will elaborate on their respective records in a moment. But we feel that, on the whole, these banks have not come anywhere near fulfilling the spirit of CRA. CRA calls on banks to get out into the community to find out what the credit needs are and to tailor loan programs to meet those needs. Any casual observer of many of New York City's neighborhoods would have to conclude that much remains to be done. A prime example of a credit need that continues to be ignored by practically the entire banking industry in New York City is the renovation and rehabilitation of multiple dwelling apartment buildings. It is true that some funds from these banks have been leveraged with Government funds and reinvested in multiple dwellings. But again, when one looks at the assets of these banks, their dealings in other kinds of real estate, and compares their commitment to upgrading housing for low- and moderate-income New Yorkers, their contribution seems extremely small. The vast majority of New York families of low and moderate means live in older, deteriorated multiple dwellings. There have been numerous studies conducted over the past several years that document the large amounts of fuel wasted in these older apartment buildings. Recently, the city of New York announced that it was preparing an energy-efficiency code, whereby owners will be required to upgrade energy-related systems in the buildings. One must ask: Where is the financing for these kinds of renovations going to come from? Certainly, we cannot afford to wait for the time when more Government moneys will be available. If the Com munity Reinvestment Act mandates banks to meet the credit needs of their communities, then how can they ignore the financing of needed repairs in multiple dwellings? Recently, the New York Times reported how housing abandonment has been greatly slowed down over the past several years in the Bronx. Much of the credit for this can go to the work of the Northwest Bronx Community & Clergy Coalition, a member of CAR. This organization has worked with tenants' associations, the city's housing preservation and development agency, some banks and insurance companies, and responsible landlords to develop a workable moderate rehabilitation program for multiple dwellings. Over 5,000 units of rental housing have been upgraded through a combination of low-interest Government loan programs and participation from private financial institutions. These, for the most part, are savings banks who already have existing mortgages on the buildings, but there has also been a sizable contribution made by insurance companies. The Aetna Life & Casualty Co. has already lent $1.5 million and Travelers Insurance Co. about $1 million. Aetna is looking to do about $2 million more business in the coming year. None of the banks appearing here today, with the exception of Manufacturers Hanover Trust, has lent $1 to these projects, and it is not because they have not been asked to participate. How is it that Connecticut-based insurance corporations can invest their money in New York City apartment buildings, but the largest New York City-based banks consider this proposition too risky? As I mentioned, Manufacturers has participated in some construction lending for the insurance company projects, and I am told that they are considering some longer term mortgage commitment presently. As for the other banks, their records show no real interest in this type of lending. I should mention, though, that last year the Northwest Bronx Coalition and the housing preservation and development department submitted a UDAG proposal to HUD to expand this moderate rehabilitation program. A total of seven financial institutions agreed to participate in raising $10 million, and both Manufacturers Hanover Trust and Citibank agreed to contribute toward this amount. Chase Manhattan Bank was approached by the city to participate, but never responded to this invitation. This nonresponse from Chase Manhattan Bank is very typical of the way in which this bank operates. Last April, after pressure by our coalition, the Federal Reserve Bank of New York and the New York office of the Comptroller of the Currency held a meeting with representatives of the 11 largest commercial banks in New York. The purpose of the meeting was for CAR to present its case about the need for more banks to start getting involved in lending programs for multiple dwellings. While the meeting produced no startling conclusions or innovative new lending programs, we did ask each of the banks to respond to our requests. Chase once again failed to reply. At least the other three banks made an attempt to continue a dialog. Recently, CAR, in conjunction with the Interfaith Center on Corporate Responsibility, held a meeting with Chase to discuss a proposal for establishing a multiple-dwelling weatherization loan pro |