DOJ Announces Largest Redlining Settlement With City National Bank of Los Angeles, $31M in Fines
by williammichaelcunningham

January 13, 2023

DOJ Announces Largest Redlining Settlement With City National Bank of Los Angeles, $31M in Fines

On January 12, the Department of Justice announced a settlement with City National Bank of Los Angeles for “refusing to underwrite mortgages in predominantly Black and Latino communities.”

The $31 million dollar settlement requires the bank to:

Given the needs in the community and the number of regulations and laws that ostensibly prohibit this type of behavior, $31 million dollars is far lower than it should be.

(The settlement may actually increase gentrification since you don’t have to be Black to get a mortgage loan subsidy, just apply for a mortgage loan in a Black neighborhood.)

We noted in our Amicus Brief in CITY OF OAKLAND, v. WELLS FARGO & COMPANY, et. al., No. 19-15169, damages totaled $12.5 billion.

(To review our Amicus Brief, see: https://drive.google.com/file/d/18e9hzYxJ9PnN2FFCk8f0MvBm7h_2TtI8/view?usp=sharing

While City National is much smaller than Wells, fines at both banks confirm that the ratio of penalties to damage caused is consistently lower than appropriate.

Still, Justice has been aggressively investigating and fining discriminatory financial institutions “as part of the Department’s nationwide Combating Redlining Initiative that Attorney General Merrick B. Garland launched in October 2021,” a very good sign. They have found this a “target-rich” environment.

While the fine represents the largest redlining settlement in DOJ history. $31 million may not be the final number. We expect other financial regulators like the Federal Reserve, the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency, to penalize the institution.

We encourage anyone affected by this institution to contact the US Department of Justice. Additional information about the section’s fair lending enforcement can be found at www.justice.gov/fairhousing. Individuals may report lending discrimination by calling the Justice Department’s housing discrimination tip line at 1-833-591-0291, or submitting a report online.

by williammichaelcunningham

January 4, 2023

Now is the Time for Black Firms to Obtain Capital — Here’s Why

We recently completed our 2023 Economic Outlook, with an eye to Black firms. Overall, we are optimistic. Our baseline forecast shows the US avoiding recession over the next year. Globally, foreign economies are at the midpoint of efforts to raise interest rates. This means the odds of recession are higher outside of the US than they are domestically.We continue to believe that now is the time for Black firms to obtain capital. Historically, there has never been a better time for Black firms to do so.  A number of new capital sources offer funding for Black firms specifically. These include JP Morgan, MBDA, several new Black-focused venture capital firms. We suggest Black firms focus on banks and corporations making Black Lives Matter (BLM) Pledges. (For a list, see Chapter 9: Corporate Pledges to Black Lives Matter: A Source of Capital? in Thriving As a Minority-Owned Business in Corporate America: Building a Pathway to Success for Minority Entrepreneurs. https://link.springer.com/book/10.1007/978-1-4842-7240-4)Several funds, grants and other financing efforts targeting Black women in particular have started in the past three years. For more, see our free class, How to Finance a Black Women-owned Business in 2022.  https://www.udemy.com/course/blackwomenbusinessfinancing/Given an increasing focus on social impact and the desire of Gen Z employees to work on more meaningful ventures, Black firms that are focused on serving the community may have a better chance of gaining and retaining employees than white firms without a social mission or focus.  Finally, for Black firms, Africa remains an area of opportunity. Some key insights:

  1. The Fed has done a masterful job lowering inflation. Based on the improvements we started tracking in the Second Quarter of 2022, https://www.impactinvesting.online/2022/07/the-us-economy-improved-in-second.html we think the Fed may get its “soft landing” after all.
  2. The only risk to the forecast is the GOP. Uncertainty surrounding policy initiatives adds to the risk of the party engineering an economic slowdown via ideologically based policies that damage economic prospects. These include:
  • Tax cuts skewed to the wealthy – which would add to the deficit and make inflation worse.
  • Raising prescription drug costs, lowering disposable income for millions of seniors.
  • Failing to responsibly manage fiscal policy by refusing to raise the debt limit and by risking a government shutdown.
  • Increasing or not lowering student loan payments.
  • Policy discussions about cutting Social Security or Medicare will add to economic uncertainty for millions of Americans and may drive the economy into a recession.

At this point, Republicans are the only risk to a positive economic outlook.

This editorial originally appeared in the Creative Investment Research newsletter.

Black Lives Matter: Corporate America Has Pledged $1.678 Billion So Far
by williammichaelcunningham

June 10, 2020

Black Lives Matter: Corporate America Has Pledged $1.678 Billion So Far

The grassroots demonstrations concerning black racial justice, sparked by the death of George Floyd, have created an urgent, unprecedented response by CEOs and corporate leaders. Companies have made extraordinary pledges of support in the face of significant operational and financial challenges. Many have stepped up support for black workers and communities. These monetary commitments are designed to  facilitate and support “action for racial justice — to empower, support, and accelerate immediate solutions, as well as work towards long-term systematic transformation.”

What is surprising is the paucity of corporations and the stinginess of the donations. In a sense, this shows the true regard corporate America has for black people and is, in actuality, why marches and demonstrations were required in the first place. The corporations in our BLM response database list earned over $400 billion in 2019.  While we understand that the level of uncertainty in the economy warrants conservation of monetary resources, these institutions are the primary beneficiaries of the Fed’s corporate credit facility, a $6.7 trillion dollar expansion in the Federal Reserve’s balance sheet specifically designed to help these corporations.

Once the heat is off, how do we know corporations will make good on these pledges? Creative Investment has captured data on corporate responses so far. The data was compiled by Andrew Taber, Impact Investing Intern, Emory University. We note that this is the first step toward an effort to monitor corporate performance in this area.

 

 

Creative Investment has launched a crowdfunding campaign to pay for the development of a tracker. To donate to our effort, please contribute at paypal.me/cirm. To get a copy of our BLM response database, send an email to info@creativeinvest.com. Click here to send Bitcoin. (Our bitcoin address is: 3PHXciT7q2RJNXXsbykP7q53EcdKx8e5wk.)

 

This editorial originally appeared in the Creative Investment Research newsletter.

 

 

This is an opinion piece that does not necessarily reflect the views or beliefs of BLACK ENTERPRISE.

by williammichaelcunningham

March 20, 2020

The Fed’s COVID-19 Policy Actions Are Treating the Symptoms, Not the Problem

On Sunday, in response to the COVID-19 pandemic, the Federal Reserve dropped its benchmark interest rate to zero and launched a new round of quantitative easing (QE): “The QE program will entail $700 billion worth of asset purchases entailing Treasuries and mortgage-backed securities,” reports CNBC.

This action did not have the sustained, positive effect on the market policymakers had hoped for. On Monday, according, again, to CNBC, the “Dow Jones Industrial Average closed 2,997.10 points lower, or 12.9%, at 20,188.52. The S&P 500 dropped 12% to 2,386.13 … while the Nasdaq Composite closed 12.3% lower at 6,904.59 in its worst day ever.”

The Fed’s policy moves failed because they did not recognize a critical fact: the market rout is a continuation of the financial crisis of 2008. As they did in 2008, the Fed has focused on the symptoms, not the cause, of the crisis.

The true cause of the Financial Crisis of 2008 was a massive decline in ethical standards of behavior. The decline led to a significant, meaningful weakening of trust. Opportunistic behavior increased dramatically and has remained at elevated levels.

We have a track record of bringing these factors to the forefront. In October 1998, in a petition to the United States Court of Appeals for the District of Columbia Circuit, we noted growing risks in financial markets, risks that reduced the safety and soundness of large financial institutions. On Feb. 6, 2006, statistical models using the Fully Adjusted Return® Methodology confirmed that system-wide economic and market failure was a growing possibility.

Our economic analysis, compiled using the Fully Adjusted Return® Methodology, indicates that “social transaction costs” caused the earlier crisis and that these costs still dominate.

Much of the current problem has to do with the Federal Reserve Board. On Sept. 18, 2019, the Fed cut interest rates, under inappropriate pressure from the executive branch. How do we know the pressure was inappropriate? The Bank of Japan and the Bank of England left interest rates unchanged. Norway actually RAISED rates—as it turned out, the appropriate monetary policy stance. Had the Fed left U.S. rates unchanged or even increased rates, they would have had more room to manage the decline in rates it implemented on Sunday night. Now, the Fed has nowhere to go but negative, a foolish and desperate policy that reflects the complete lack of ethical options.

We know, from the Mueller Report, that the current administration is both unusually unskilled and unusually unethical. The lack of ethics led them to pressure the Fed for an over-accommodative monetary policy. Meaningful financial institution regulation and enforcement, weakened after decades of ineffectiveness, means that unethical and opportunistic behavior remains unpunished. Trust remains low, as evidenced by failures in the repo market.

This lack of ethical monetary policy encouraged excess economic activity. In other words, the global economy overheated. (Perhaps a decline in manic levels of economic activity would have had a dampening effect on sales at the exotic food market cited as the source of the virus.)

Widespread fraud in the marketplace revealed a generalized, deep and pervasive decline in ethical standards of business behavior, one that continues to this day. Efforts have been made to repair the ethical damage. House Financial Service Committee Chair Maxine Waters launched a successful effort to replace two board members at recidivist financial institution Wells Fargo, but more is needed.

Removing all bonus payments made to executives and board members of the financial institutions responsible for the 2008 financial crisis may be required. It may also be necessary to reach back and close several of the financial institutions who were responsible for the 2008 financial crisis.

The damage to the economy from the COVID-19/coronavirus crisis will be severe. We estimate the U.S. economy will experience a 13% decline in gross domestic product (GDP). Given the lack of effective, meaningful financial institution regulatory oversight, ethical standards have not been re-elevated. We have seen that bad behavior leads to a lack of trust and a lack of consideration for the long-term well-being of the community (ALL members of the community, not just the wealthy and the white). Under these conditions, the market will continue to fall.

Perhaps we can use this crisis to help restore ethics to financial institutions. This should be the price they must pay for being bailed out yet again.

This article was written by William Michael Cunningham, an economist and impact investing specialist at Creative Investment Research in Washington, D.C.

The opinions expressed in this Op-Ed do not necessarily represent the views of BLACK ENTERPRISE.

by williammichaelcunningham

October 21, 2019

Economist Offers $50 Billion Federal Solution to the Black Banking Crisis

On Tuesday, Oct. 22, the House Financial Services Committee, chaired by Maxine Waters (D-CA), will hold a hearing on “The Decline of Minority Depository Institutions and the Impact on Underserved Communities.” The hearing follows a number of failed legal and regulatory initiatives designed to preserve the number of black banks.

In August 1989, Congress enacted the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). Section 308 of FIRREA established the following goals:

  • Preserve the number of minority (including Black) depository institutions;
  • Preserve the minority character in cases of merger or acquisition;
  • Provide technical assistance to prevent insolvency of institutions not now insolvent;
  • Promote and encourage the creation of new minority depository institutions.

An objective review of 308 leads to the conclusion that banking regulators, the Fed, in particular, failed to follow the law. There were 55 black-owned banks and thrifts in 1994. By 2016, there were just 23. Twenty-four remain today. Fifteen of the largest black banks can be found on BLACK ENTERPRISE’s BE BANKS List.

There have been other regulatory failures. Section 342 of Dodd-Frank Wall Street Reform and Consumer Protection Act requires nearly 30 agencies, including the Federal Reserve, the Treasury Department, and the Federal Deposit Insurance Corp., to establish offices of minority and women inclusion to monitor diversity within the agencies and in the ranks and the pool of contractors who provide goods and services to them. One would think this would help black banks. It did not.

Banking regulators have recently attempted to cover up their history of neglect. On Sept. 26, 2019, the Federal Reserve Bank of Kansas City held a seminar on Minorities in Banking, 22 years after I gave a talk there (in November 1994) on “The Role of Minority-Owned Banks in Meeting Credit Needs in the Marketplace.” Unfortunately, my talk did not help the Fed preserve black banks. As they exist now, black banks are too small and too weak to make a difference.

At the Kansas City Fed in 1994, I suggested the Fed’s Federal Open Market Committee (FOMC) purchase mortgage-backed securities (MBS) originated by black banks as part of open market operations. The Fed, then under Alan Greenspan, declined, saying that only Treasury securities were appropriate collateral. Since the financial crisis, the Fed has purchased trillions in securities, helping white-owned banks, broker-dealers, insurance companies auto companies, and investment banks. Not only did few black banks receive any assistance, but the ones that did were the wrong banks.

We still believe one possible solution to the black banking crisis is to have the FOMC create a black bank liquidity pool totaling at least $50 billion by conducting repo and reverse repo transactions, purchasing Treasury, MBS securities (and/or SBA loans) from black banks with a record of actually making loans to the black community.

With a little federal help, black banks might be able to grow and get stronger. In this way, they may be able to finally help small businesses and would-be homeowners realize their dreams, as one black bank in New York City, Carver Federal (No. 3 on the BE BANKS list with $590 million in assets), tried to do after the financial crisis:

Of course, there are bound to be problems with this approach. For example, black banks would have an incentive under this program to purchase home mortgage and small business loans from white-owned banks and simply stamp their label on them. Fortunately, technology allows us to look through the securities to reveal the origination process and path. Any pools that consist to loans purchased from white-owned banks for purposes of participating in the Fed black bank program should be rejected, with one exception: loans originated by entities with a track record of actually helping the community, in the model of ACORN (the Association of Community Organizations for Reform Now). And black banks that do not have a history of making loans to the black community or have demonstrated questionable banking practices should be prohibited from participating in this type of FOMC program.

Even with these potential problems, I believe the effort would be worthwhile, not only for black banks but also for the country as a whole.

 

This is an opinion piece that does not necessarily represent the views of BLACK ENTERPRISE.