Home > Banking Information & Regulation > Public Meeting Transcripts > PMT - Agendas August 13, 1998
Public Meeting Transcripts
Public Meeting Regarding Banc One and First Chicago
Thursday, August 13, 1998
Transcript of Panel Twelve
10 MR. BROMLEY: My name is Charles Bromley. I'm 11 the Director of a statewide fair housing 12 organization called Metropolitan Strategy Group 13 based in Cleveland, Ohio. I also serve as the 14 Chair for the Ohio Community Reinvestment Project, 15 a statewide coalition of community-based 16 organizations committed to fair lending throughout 17 the State of Ohio. 18 Because a picture is worth a thousand 19 words and I've been allocated five minutes, I've 20 prepared some pictures that outline a snapshot of 21 the lending behavior of Banc One and its affiliates 22 in the State of Ohio. 23 Let me first review Banc One's behavior in 24 an area where they are ranked as a very large 220 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 volume lender, which is small business lending. 2 They are third in the country. 3 According to Ken Stevens, who is the head 4 of this unit or retail lending, I guess it is, a 5 small business customer doesn't care where the 6 corporate headquarters are. What they care about 7 is local execution, are they doing a job for me, is 8 my relationship manager serving my needs? 9 Apparently, Mr. Stevens forgot to review 10 his small business lending record with Blacks in 11 greater Cleveland. 12 Let me look at some of the statistical 13 data in our first chart, which in theory -- the 14 A.V. crew, if I remember them from junior high, 15 always had problems. Apparently, as adults, we are 16 still struggling with this equipment. Maybe 17 eventually we'll get it right. I don't know. 18 But what you see here in terms of the 19 picture of their lending in census tracts, this is 20 the census tracts of greater Cleveland. There are 21 685 census tracts. There are 185 census tracts 22 that have a minority population of 50 percent or 23 more. The percent of tracts with no Banc One small 24 business loans is 68 percent, nearly 70 percent, 221 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 and census tracts that are under ten percent 2 minority, in other words, predominantly white, they 3 have a percent of tracts with no Banc One loans of 4 38.58. 5 Now, when you look at the issue of the 6 next chart which looks at stratification by income, 7 and the percent of tracts with no Banc One loans is 8 65.22. As you go to the upper income part of the 9 chart, you'll see it's 39.86. 10 So this is a bank that has an affinity for 11 wealthy, white census tracts in terms of their 12 small business lending. There is no question about 13 that pattern as it occurs in greater Cleveland. 14 Now, we mapped this data so you can see 15 it, which should be the next -- I don't know if 16 we're on the wrong -- okay. Stop. Okay. There 17 you go. That's fine. 18 This is the map of our standard 19 Metropolitan statistical area. In the middle of 20 the map, there is kind of like a county, and you 21 can't really see it, but it's the white area, and 22 that's the area where there are no small business 23 loans. 24 Cuyahoga County has the largest percentage 222 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 of minorities in that statistical area. The area 2 that is predominantly blue is the area that is all 3 white. So you get a sense of where their small 4 business lending is and also where it's not. 5 Next. 6 Now, that's just a highlight of Cuyahoga 7 County. So you can see specifically that in 8 addition to red lining in Cuyahoga County, they 9 also red line the first ring suburbs, which is 10 those integrated communities, that which is closest 11 to the City of Cleveland. I hope a picture really 12 does tell you something. 13 It's difficult with small business lending 14 because you don't know how many loans per tract. 15 All you know is whether they made one or they could 16 have made a dozen. You do know where they made 17 none. So we do have that data there. 18 Next. 19 This is much less clear, I guess, in terms 20 of coming out. This is the data for Cuyahoga 21 County, and the screen on this is low to moderate 22 income tracts. And you can see there's a strong 23 correlation between the tracts and where their 24 loans are. 223 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 I realize I have one minute left. Maybe 2 we can flip here to Toledo. 3 It's hard to see, but in the stuff here, 4 you can see this is their market share. Their 5 large product that they have in Ohio is home 6 improvement lending, and as you go into the 7 minority tracts, you find two things: One, the 8 lack of applications and, two, their market share 9 shrinks to zero. This is their major product. 10 They seem to have an affinity to stay away from 11 those neighborhoods. 12 The last one is Cincinnati, and you can 13 see the same pattern is seen there where their 14 applications are very low in minority census 15 tracts, and you can see that their market share is 16 very low in those census tracts and very high in 17 those other tracts. 18 I've included in my testimony -- I just 19 want to take 30 seconds. 20 We have taken our testimony, we have 21 turned it over to the Assistant Attorney General 22 for Civil Rights at the Department of Justice. We 23 hope that they will give a thorough review. 24 We believe there are serious fair lending 224 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 issues relative to Banc One in the State of Ohio. 2 And before the Federal Reserve Bank acts 3 on this merger, the Department of Justice should be 4 given the opportunity to completely review the fair 5 lending record of Banc One in the State of Ohio. 6 Thank you so much. 7 MS. SMITH: Mr. McDermitt. 8 MR. McDERMITT: Good afternoon. My name is 9 Matt McDermitt. I'm a Policy Specialist with the 10 Chicago Coalition for the Homeless. 11 The Coalition is a 17-year-old advocacy 12 organization focusing on the root causes of 13 homelessness and working to find permanent 14 solutions to the problem. 15 The Coalition has nearly 15,000 members in 16 the greater Chicago area and nearly 800 17 organizational members, shelters, churches and 18 other organizations serving the homeless. 19 The Coalition has very serious concerns 20 about the proposed merger between Banc One and 21 First Chicago NBD. 22 We understand that Banc One has a very 23 poor CRA record and a wavering commitment to the 24 very important mortgage lending business, very 225 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 important to the housing market. 2 In addition, Banc One has refused to 3 negotiate directly with community groups and 4 coalitions. While they maintain all agreements 5 made by other parties to the merger will be 6 honored, there is unfortunately no guarantee of 7 that. 8 All three parties related to the merger, 9 Banc One, First Chicago and NBD, also have less 10 than admirable records of lending in African 11 American and Latino communities. 12 These shortcomings by major market 13 institutions seeking to increase their market 14 dominance have tragic consequences. 15 The lack of capital in many communities -- 16 the lack of capital in many communities prevents 17 the creation of new housing and new employment 18 opportunities. 19 While many of these potential 20 opportunities might not directly be available to 21 the people I represent, the absence of -- excuse me 22 -- their absence is the beginning of a spiral that 23 winds up impacting the poorest members of our 24 communities, those who we don't often think of when 226 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 we think about banks, but homeless people. 2 Because bank capital is not available to 3 create these opportunities, we increasingly see a 4 reliance on government funding for housing and job 5 creation for middle and moderate income folks. 6 This demand on government resources, 7 usually a successful demand over those needs of 8 very low income folks, truly -- I'm sorry. Lost my 9 place here. 10 This demand on government resources 11 competes against funding for projects for very low 12 income and homeless people which truly cannot be 13 served by market institutions like banks. 14 With 80,000 homeless people in Chicago 15 every year and more children among them every year, 16 we have an average age of homeless people in 17 Chicago and across the nation now of only nine 18 years old. Because we have so many children in the 19 population today, we must have greater commitment 20 from our banks to serve the entire community rather 21 than profiting from creating more disparities in 22 our country. If we do not, the results will be 23 even greater tragedy in the next generation. 24 For this reason, the coalition opposes the 227 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 Banc One/First Chicago merger until all parties 2 make direct community investment commitments. 3 Thank you very much. 4 MS. SMITH: Thank you. 5 I'm going to let you say your own name. 6 MR. GIERUT: My name is Father Casimir Gierut. 7 As a consumer seeking banking services, I 8 strongly oppose the proposal by Banc One 9 Corporation to merge with First Chicago Corporation 10 for the following reasons: First, the merger will 11 destroy competition between the two banks. 12 Competition is a financial asset in the 13 favor of all consumers. We have the opportunity to 14 compare different interest rates offered by the two 15 banks. The final decision is in our favor to 16 accept a bank offering a higher interest rate in 17 reference to the purchase of a Certificate of 18 Deposit or to accept a bank offering the lowest 19 interest rate toward a loan. 20 This merger will force the consumer to 21 deal only with one mega bank. Our freedom to 22 choose the other bank will be gone. There will be 23 no alternative but to accept whatever interest 24 rates the bank wishes to offer to the public. That 228 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 is not the right way to do business in a 2 capitalistic society. 3 To possess financial power at the hands of 4 few bankers as a byproduct of merging banks into 5 mega banks is to be feared. 6 Secondly, I oppose the merger of Banc One 7 with First Chicago because it will become a huge 8 monopoly. 9 The United States Attorney General, Janet 10 Reno, should file suit, an antitrust suit, against 11 this merger to stop this becoming the biggest 12 monopoly in the United States. 13 Banks are not an agency of the Federal 14 Government which will exempt them from any 15 antitrust laws. Banks are privately-owned 16 financial institutions. The title corporation and 17 the name following Banc One Corporation tells us it 18 is a private corporation. The title again 19 corporation in the name following First Chicago 20 corporation tells us again that this is a private 21 corporation. 22 It is not fair nor just to file an 23 antitrust suit against Bill Gates' Microsoft 24 Corporation merging with another giant computer 229 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 corporation because the merger is considered to be 2 a monopoly and not applying the same antitrust suit 3 against Banc One and the First Chicago which 4 obviously is a monopoly. 5 Justice is not served equally in the 6 application of the antitrust laws to private 7 corporations. To allow Banc One and First Chicago 8 to merge into a monopoly is unlawful, illegal and 9 contrary to the antitrust laws. 10 Thirdly, the mergers are not made for the 11 good of consumers. The bottom line is how much 12 profit is made for the good of the bank, and this 13 leads to greediness. 14 I recall standing in line to open an 15 account at the First Chicago. As many tellers 16 there are accounts for so many long lines of people 17 standing patiently to be assisted by the teller. 18 Instead of First Chicago being pleased to see long 19 lines of people, the greedy bank decided to charge 20 a fee of three dollars for a teller's assistance. 21 I heard many complain that the three 22 dollars may be a fee in the mind of the banker, but 23 I call the three dollars an act of extortion. 24 Either you turn over three dollars or you will not 230 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 be served by the teller. Such a procedure is 2 extortion and unacceptable in the lawful business 3 world of finance. 4 Lastly and the most important reason why I 5 oppose the merger of Banc One with First Chicago is 6 that this kind of a merger decreases the existence 7 of any growth of banking. 8 In the year 1985, there were 14,480 9 banks. Today, the year of 1998, the number of 10 banks has dwindled down to 9,435 banks and 11 decreasing in number with each new merger. 12 For the power to be vested in the hands of 13 a few bank presidents and bank directors is 14 contrary to principles of capitalism which is the 15 way of life for 231 million Americans. 16 I want to quote Robert Hamphil, the former 17 credit manager of the Federal Reserve Bank of 18 Atlanta, Georgia, who said: "We are completely 19 dependent on commercial banks. If the banks create 20 ample supply of money, we are prosperous. If they 21 don't, we starve. The banking problem is so 22 important that our present civilization may 23 collapse banking unless it is wisely understood and 24 the defects remedied very soon." 231 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 Merging of banks is one of those defects 2 will bring about a new kind of slavery. Financial 3 dominance in the hands of a few will create a 4 financial enslavement of people and civilization. 5 And this is why I oppose the merging of 6 Banc One with First Chicago. 7 Thank you. 8 MS. SMITH: Thank you very much for your 9 comments. 10 We'll go to Mr. Kamp. 11 MR. KAMP: On behalf of the Wisconsin Rural 12 Development Center, I would like to thank the 13 Federal Reserve Board for the opportunity to speak 14 with you on the proposed merger of First Chicago 15 and Banc One. 16 We are a 300-member statewide community 17 organization which has worked with family farmers 18 and rural small businesses for over 15 years. 19 Our mission is to support family farm 20 agriculture, rural development and enhance economic 21 opportunities for rural residents throughout the 22 state. 23 Our organization previously submitted 24 formal comments on this application. Specific 232 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 concerns cited in those comments included Banc 2 One's low-level of originations to low and moderate 3 income conventional home buyers, its lack of 4 participation in state and federal guaranteed 5 programs designed to assist LMI first-time home 6 buyers, small farms and small businesses, its 7 systematic targeting of loans to upper income 8 borrowers and consequently the bank's disinvestment 9 in low income and underserved rural communities. 10 An analysis of 1997 HMDA and CRA aggregate 11 data shows that Banc One continued to make 12 significant cuts in conventional home ownership and 13 small business originations in our state. 14 Based on deposit share, Banc One is the 15 third largest commercial institution in Wisconsin. 16 Clearly, how it conducts its business and meets 17 reinvestment obligations has a substantial impact 18 on our state's economy and the communities it 19 serves. 20 Changes in lending policies and practices 21 can often have devastating consequences, especially 22 for a state's poor. 23 According to 1997 data, these changes are 24 beginning to occur. Nationally, Banc One is the 233 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 second largest home mortgage lender. However, 2 fewer than two percent of all conventional home 3 mortgages are originated by Banc One in our state, 4 and that share appears to be declining. 5 Between 1996 and 1997, conventional home 6 ownership dropped by over 35 percent. At the same 7 time, loans to LMI borrowers were cut by nearly 43 8 percent. 9 In six of the seven MSAs which we looked 10 at, LMI borrowers consistently received a 11 disproportionately low share of one to four family 12 conventional home mortgages while upper income 13 borrowers consistently exceeded MSA share averages. 14 Banc One also accounts for significant 15 business lending in the state. The bank is the 16 third largest business lender in Wisconsin with 2.8 17 billion in loans outstanding. However, according 18 to FFIEC small business data, substantial cuts were 19 also reported in 1997. Business originations 20 declined by nearly 21 percent, over $90 million 21 from the previous year. Over one-third of those 22 cuts were to businesses with gross revenues of less 23 than one million. 24 Although numerous studies have stressed 234 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 the need for small business development in the 2 state, fewer than 49 percent of all loan numbers 3 and 38 percent of all dollar amounts went to 4 businesses with gross revenues of under 5 $1 million. 6 Of particular concern is Banc One's 7 minimal use of state and federal guaranteed 8 programs which are designed to serve the needs of 9 LMI borrowers. In 1997, less than eight percent of 10 all conventional home loans were guaranteed under 11 the Wisconsin Housing and Economic Development 12 Authority's Home Ownership Mortgage Program, the 13 WHEDA Home Program. 14 Banc One's assessment areas include 11 15 rural counties. Deposits within these assessment 16 areas represent 60 percent or 738 million of all 17 Banc One deposits in the state. 18 In our initial comments, we criticized the 19 bank's low-level of lending in rural areas, 20 specifically regarding small farm originations. 21 In their written response, Mr. Steven 22 Bennett and Ms. Julie Johnson stated that Banc One 23 serves a predominantly urban market and they 24 implied are under no obligation to meet all the 235 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 credit needs within rural areas. 2 However, we believe this attitude raises 3 serious questions about the bank's lack of 4 commitment in meeting the convenience and needs of 5 communities they are supposed to serve. 6 Are we done? 30 seconds. 7 Simply, a bank cannot ignore credit needs 8 within its delineated area and then originate the 9 same type of loan in other more affluent 10 nonassessment areas. However, according to the 11 1997 FFIAC small farm data, over 21 percent of all 12 farm loan numbers and 23 percent of all dollar 13 amounts were originated outside of delineated 14 assessment areas. The eight highest income rural 15 counties in the state received 78 percent of all 16 Banc One small farm originations. 17 In rural Wisconsin, the percentage of low 18 income families often exceeds rates found in 19 central cities. Clearly, a need exists, however, 20 the bank's use of federal and state programs is 21 minimal. 22 Based on Banc One's CRA performance in 23 Wisconsin, we request that the Board of Governors 24 deny the proposed merger until the bank can take 236 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 affirmative steps to address the deficiencies cited 2 above. 3 Thank you. 4 MS. SMITH: Thank you very much. 5 Mr. VanTol is wearing a different hat. 6 MR. VANTOL: Yes. 7 I want to thank you for allowing me to 8 double dip here. Now I get to speak my own piece 9 instead of that of a coalition. 10 My name is Hubert VanTol of Sparta, 11 Wisconsin. I am the President of Bank Watchers. 12 We provide information and other services for 13 community-based organizations on banking and 14 community reinvestment issues. 15 As I said, in speaking for John Taylor, I 16 also serve as a board member of the National 17 Community Reinvestment Coalition. 18 I agree with most of the issues that have 19 been raised about Banc One's deficient CRA record, 20 and since I can't possibly do justice to those many 21 complex issues in this short time, I'm going to 22 focus just on the one issue of how CRA gets 23 interpreted for rural areas. 24 My colleague, Marv Kamp, has outlined some 237 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 of the concerns about how Banc One provides 2 services and loans to rural Wisconsin. I think his 3 comments highlight the importance of the Federal 4 Reserve giving more careful thought than it has in 5 the past to how the Community Reinvestment Act 6 should be enforced in rural areas. 7 With mega mergers like these happening, 8 they're transforming the shape of the banking 9 industry, and it's very important that we think 10 these issues through better. 11 What does providing fair access to credit 12 in rural America mean for huge institutions that 13 are buying up the branches and the ability to 14 provide services in suburban and in some cases 15 inner city markets but are leaving the rural 16 counties and particularly the lower income rural 17 counties that span the areas between those urban 18 areas completely out of the picture? 19 You've heard that Banc One is providing 20 agricultural loans at a much higher rate in some of 21 the wealthier rural counties of Wisconsin than in 22 the poorer ones, and you've heard that they've 23 closed a number of rural branches in Ohio. 24 In the enforcement of CRA, what is the 238 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 practical difference between an urban bank which 2 draws a bright red line around the low to moderate 3 income census tract in its local assessment area 4 and says it won't provide services and loans within 5 that area and a super regional bank like Banc One 6 which draws an invisible line around the poorest 7 rural counties in the several states that it 8 operates in and then closes branches, does away 9 with services, makes very little proactive effort 10 to meet the credit needs of the residents of those 11 areas? 12 I live in a moderate income section of a 13 rural Wisconsin, and we are seeing the same results 14 of disinvestment that low income inner city 15 neighborhoods have seen for a long time. 16 The subprime and predatory lenders have 17 started opening up shop. It's becoming harder to 18 get loans with a fair rate. Indeed, it's becoming 19 harder to get fair rates on related financial 20 services like property insurance. 21 This is happening because the largest 22 institutions have decided that they can make more 23 money meeting the credit needs of wealthy 24 communities or putting money into derivatives or 239 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 whatever the current hot money fad is than they can 2 make in communities like ours. 3 It's not that they can't make money in our 4 communities. They just can't make enough to please 5 Wall Street. 6 As a result, we still have competition in 7 financial services in our communities but not the 8 kind of competition that middle and upper income 9 suburbanites can count on. 10 We have the competition between the very 11 smallest financial institutions, the 12 semi-legitimate, subprime lenders and the loan 13 sharks, but if the Community Reinvestment Act were 14 enforced with rural communities in mind, we could 15 enjoy the same fruits of real competition in the 16 same way that suburbanites do. 17 I think the testimonies of the various 18 people have given you a clear picture of different 19 ways in which community reinvestment needs can be 20 met, the very promising road we can do down, the 21 Chicago and Detroit road, or the negative road that 22 some of the other communities have testified to. 23 So if this mega merger provides for 24 specific agreements with measurable and reasonable 240 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 targets similar to what the Chicago Reinvestment 2 Coalition negotiated with First Chicago for each of 3 the urban and rural sections of the state, most of 4 us wouldn't be here today. Most of my colleagues, 5 I'm sure, would watch such a merger happen without 6 the outrage that we feel now. 7 In this case, however, it seems clear what 8 the dominant philosophy that survives in the 9 surviving bank will be. 10 So we ask you to go ahead and make our 11 day, surprise us and do the right thing. 12 MS. SMITH: Thank you very much. Thank you 13 very much for coming. 14 MR. ALVAREZ: Can I ask a quick question? I am 15 sorry. 16 Mr. Kamp, and Mr. Bromely in particular, 17 you had further remarks than the time allowed and 18 you had a lot of statistics. Are all of these 19 statistics in your packages and explained in the 20 material? 21 MR. KAMP: Yes. 22 MR. ALVAREZ: And the numbers that you put 23 together for your comparisons of loans in low to 24 moderate income neighborhoods versus other areas, 241 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 is that based on number of loans or dollar amounts 2 or -- 3 MR. KAMP: For my analysis, both number and 4 dollar. 5 MR. BROMLEY: We had numbers. 6 MR. ALVAREZ: And you used the numbers? 7 MR. BROMLEY: Yes. 8 And ours, the home improvement lending was 9 aggregated. We rolled up all the Banc Ones in Ohio 10 and made one master file. So they have a number of 11 Banc Ones, and we put them all together. I think 12 corporately, they rounded them up in 13 '97 so you can see it, and it's applications and 14 then it's market share. 15 MR. ALVAREZ: Thank you very much. 16 MR. KAMP: Market share is also. 17 MR. ALVAREZ: Okay. 18 MS. SMITH: All right. We are ready to start, 19 Ms. Carrillo.
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