A recent forum on interstate banking in the District conveyed a sense of ambiguity about a new relationship between local banks and community groups.
The nearly-two-hour exchange of information and viewpoints was mostly uneventful, though there were times when the forum produced undertones of an uneasy truce between the local banking industry and representatives of community organizations.
Community groups, over several years, have attacked lending policies of local banks, but even with evidence supporting claims of discrimination, those organizations have had little impact on investment policies at most banks.
That changed last year, however, when D.C. banks accelerated efforts to win passage of an interstate banking law. Questioning banks' compliance with the Community Reinvestment Act (CRA), a coalition of community organizations challenged the application of United Virginia Bankshares Inc. to acquire the District's NS&T Bank.
UVB, not wanting to fight a challenge of its application before the Federal Reserve Board, signed a community investment agreement with the D.C. Reinvestment Alliance (DCRA). UVB already had made it clear that it wanted to complete its acquisition of NS&T before the end of 1985 to avoid any adverse effects that President Reagan's tax reform proposal might have had on NS&T's earnings this year.
UVB has a fairly strong record under the CRA in Virginia, and executives of the Richmond bank holding company had assured D.C. government officials that UVB would match that performance in the District. Nonetheless, UVB signed the agreement with the DCRA.
The agreement, which calls for UVB/NS&T to invest a minimum of $10 million in D.C. neighborhoods over the next five years, also provides, among other things, for cooperative housing loans, permanent mortgage financing for the purchase and rehabilitation of D.C. residences, loans to small and minority businesses, and flexible credit and underwriting standards for individuals and nonprofit organizations.
At last week's forum on "The Changing Banking Industry in Washington," Larry F. Weston, executive director of the Metropolitan Washington Planning and Housing Association, said the agreement "brings the community into a positive, productive relationship with lenders."
"Community credit needs must be the motive force for shaping neighborhood lending policy, and . . . private lenders, whether they be regional, national or locally based, must do their share in revitalizing all of our neighborhoods," Weston declared.
Weston's remarks reflected a sense of triumph. Other comments heard at the forum made it clear that any institution that plans to acquire a D.C. bank will be challenged to sign an investment agreement with the DCRA.
In reality, the agreement with UVB/NS&T -- the only one of its kind to be incorporated in an interstate merger application -- is more symbolic than efficacious where D.C. banks are concerned.
Interstate mergers aside, D.C. banks can't afford to operate as they did 20 years ago. Competitive pressures have forced local lenders to view the market differently. The conservative roots of Washington's banking industry have been shaken, not only by the recent arrival of Virginia banks, but by the earlier penetration of the market by a host of financial services competitors.
Some money-center banks may yet acquire D.C. banks under the District's new interstate banking law, but the fact remains that those institutions already are here in one form or another. Big out-of-state banks and other financial services competitors have wrested substantial chunks of the market from local institutions. A District savings and loan executive estimates there are more than 400 mortgage lenders serving metropolitan Washington.
Twenty years ago, it was possible for Washington's old-line conservative bankers to be comfortably selective in making loans. Several Washington bankers acknowledge that certain neighborhoods were redlined, or denied loans that were available to other communities.
The pressure of competition has made it more difficult for local banks to maintain the discriminatory policies of the past. Moreover, unpleasant experiences with foreign and ambitious domestic loans outside the Washington area have forced local banks to look inward. New leadership in Washington's banking industry not only concedes the mistakes of the past but recognizes the importance of fighting for local market share in the face of stiffer competition.
"I think banks will have to do more [local investing] because they will come to realize that it is good business in a deregulated environment," said William White, executive vice president of National Bank of Washington and a panelist at last week's forum.
In short, this is the "dawn of a new era in banking," observed Michael R. Ryan, president of NS&T.