SMALL BUSINESS LENDING

Stacy Mitchell, senior researcher for the New Rules Project’s Community Banking Initiative, explains that the big banks constrict credit for small businesses while community banks do disproportionately more small businesses lending, and what to do to allow them to get the economy moving again.

Why is it that community banks do so much more small business lending than their big competitors? One reason is that big banks rely on computer models to determine whether to make a loan. Because the local market conditions and the circumstances surrounding each borrower and his or her enterprise are so incredibly varied, this standardized approach does not work very well when it comes to understanding the nuances of risk associated with a particular small business.

By drawing on qualitative information – getting to know the borrower, learning about the business, and understanding the local market – small banks can better assess risk and successfully make loans to a wider group of small businesses.

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How much community banks lend to small businesses? See the charts below:

 

L.A. VOTES TO MOVE ITS MONEY

 

The Los Angeles City Council has voted to move its money out of banks that fail to protect citizens from losing their homes. Dennis Santiago was in the room at the time and reports:

Another landmark piece of legislation was passed today.

The City Council of Los Angeles voted 12-0 to pass Councilman Richard Alarcon’s motion 09-0234, also known as the “responsible banking practices” motion. This will set the City on a path to require banks doing business with the City, or seeking to do business with the City, to report on the details of their local reinvestment in the community. The ordinance to be drafted will tie a bank’s involvement in the community to contracts for the City’s operating funds and pension programs worth up to $28.9 billion dollars.

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The bill creates a “report card” that evaluates banks looking to do business with the city based on their record on mortgage modifications and small business lending, among other things. Banks that do not meet the standard would not receive city funds.

This means that Los Angeles has chosen to use its money to help its own communities instead of abusive banks. Way to go everyone!