superficial and inconsistent data, and a lack of performance driven
Federal regulators methods for examining how the largest
banks deliver financial services to communities throughout the Chicago
region is inconsistent and incomplete, says a new report by Woodstock
Institute. The availability of
appropriate and fairly priced financial services are critical for helping
lower-income people enter the financial mainstream. This neglect harms the financially
Looking at recent bank examinations, Woodstock Institute
researchers tried to determine how federal examiners evaluated the distribution
of bank branches and the quality and relative affordability of basic financial
services, such as checking accounts.
They found glaring omissions, inconsistent evaluation methods, and in
some cases, little more than cursory praise of the banks modest effort. Geoff Smith,
research director described the exams as plagued by insufficient quantitative
data, superficial and inconsistent qualitative data, and a lack of performance
The Community Reinvestment Act, which authorizes Federal
examiners to evaluate the performance of financial institutions in lower-income
communities, has resulted in detailed information on mortgage and small
business lending patterns but far too little on another critical component of
community reinvestmentfinancial services.
In the past, researchers, community groups, and practitioners have
criticized the implementation of the test for its vagaries and proposed several
reforms designed to hold the largest banks accountable. At the same time, they
continue to provide incontrovertible evidence that lower-income communities
have not shared in the recent bank building boom, despite the relatively high
aggregate income available for deposit. Moreover,
banks are not competing effectively against high-priced financial service
providers such as check cashers in those neighborhoods.
Woodstock Institute and others have called on federal
regulators to supplement data on how bank branches are distributed, with data
on how they perform in reaching out to lower-income neighborhoods with
appropriate and affordable financial services.
All of this data is currently available to bank examiners, but the fact
that it has been only sporadically reported publicly, substantially limiting
its usefulness. Such data must be
collected in a standardized manner and reported for every institution
examined. The absence of such data from
the majority of examinations reflects an institutional unwillingness on the
part of the bank regulators to take the service test seriously despite the
The implementation of the service test needs major
improvements before the test can capture the reality of an institutions
delivery of banking services to lower-income people and communities. The following changes would allow the test to
more effectively measure a banks performance and should be reported in the
1. Branch distribution should be measured in a consistent
manner against the percent of households living in low-and moderate income
neighborhoods in the banks assessment area.
2. Standardized data on new and existing retail checking
and savings accounts should be collected and analyzed by regulatory agencies.
These data should include information on account holder census tract, year
opened, and average annual balance.
3. Examiners should institute a systematic analysis of
the full cost of retail products such as checking accounts which will allow for
comparisons among institutions.
View the full report:
Woodstock Institute, founded in 1973, is a
nationally-recognized resource on credit and capital needs of low-income and
minority communities. The Institute engages in applied research, policy
development, and technical assistance to promote community economic