Serving the Underserved: Initiatives to Broaden Access to the Financial Mainstream. Thursday, June 26, A.M.

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1 Testimny f James E. Yung, President & CEO Citizens Trust Bank Atlanta, Gergia Befre U. S. Huse f Representatives Subcmmittee n Financial Institutins and Cnsumer Credit Hearing 2128 Rayburn Huse Office Building Hn. Spencer Bachus, Chairman Serving the Underserved: Initiatives t Braden Access t the Financial Mainstream Thursday, June 26, A.M. Mr. Chairman, and distinguished Members f this imprtant Subcmmittee; I am pleased t appear befre yu tday t ffer cmments n the tpic: Serving the Underserved: Initiatives t Braden Access t the Financial Mainstream. I thank yu fr the invitatin and pprtunity. Yu are t be cmmended fr hlding hearings n this matter, best knwn in the financial services area as Banking the Un-banked. I am here representing Citizens Trust Bank; headquartered in Atlanta, Gergia. I. CTB Histry: Citizens Trust Bank was funded in 1921 and is currently the sutheast s largest African-American wned cmmercial bank Citizens Trust Bank is the third largest African American wned cmmercial bank in the natin, with nearly $400 millin in ttal assets. Citizens Trust Bank is a Cmmunity Develpment Financial Institutin (CDFI), a designatin received frm the U.S. Treasury Department by bank s and ther Page 1

2 financial institutins with a primary missin f prmting and meeting cmmunity develpment needs in distressed areas f its market area. Recently, Citizens Trust acquired the histric Citizens Federal Savings Bank f Birmingham, AL and currently has 11 branches thrughut metrplitan Atlanta and Clumbus, Gergia, tw branches in Birmingham, and ne in Eutaw, Alabama. II. Ecnmic Trends and Necessity: In the cntext f hw the financial services industry currently wrks, lw-incme citizens must establish a depsit accunt as a means t enter the financial mainstream and begin asset accumulatin. It is als my cntentin that ecnmic vitality can flurish in lw-incme cmmunities - - If significant numbers f the cmmunity are able t mve frward n asset building tracks. Therefre, access t the financial mainstream fr the un-banked is mre than simply being able t pen bank accunts. Indeed, equal access t the financial mainstream is a critical cmpnent f lcal develpment. Insured depsitries shuld take n prviding such access. In general these institutins ffer useful services t supprt an individual asset building prgram by: Taking direct depsits, prviding a safe place fr electrnic payrlls, gvernment benefit checks and ther depsits t be received. Prmting savings by paying interest and ften limiting access t funds n depsit. Page 2

3 Prviding accunt statements t track their savings r checking balances and interest earned. Prviding access t regulated lan prducts, which have minimum standards f custmer prtectin. Prviding a means t establish gd credit. Encuraging hme wnership thrugh mrtgage lans. Lwering the csts f basic financial services fr custmers with qualifying balances. Cmbining the delivery f financial services with infrmal custmer educatin n financial planning, including apprpriate lans and savings fr cllege, hme wnership, hme imprvement, r retirement. The questin is: What are the challenges facing mst mainstream financial institutins in making such banking services available t the un-banked? As a banker, I wuld submit the fllwing bservatins fr yur cnsideratin: 1. Such financial institutins d nt ffer the types f retail services that meet the particular needs f the un-banked because they d nt find such transactins cst effective. 2. Many lw-incme custmers need persnal high-tuch services at dd hurs. Page 3

4 3. In additin, many banks and credit unins prefer nt t underwrite the small, shrt-term lans thse lw-incme custmers require. Because lw-incme husehlds barely have sufficient funds t meet their day-tday needs, many need shrt-term credit especially when unexpected expenses arise. 4. Prfile f an Un-banked Individual: 1. Histry f bunced checks 2. Accunt clsures 3. Pr financial management 4. Cash nly basis fr husehld 5. Lw t middle incme levels Therefre, the challenge in banks and ther financial institutins face in prviding banking services t the un-banked is that they must build a significant vlume f custmers with an array f prducts and level f service that a) meets the immediate financial needs f the unbanked b) builds an strng interest n the part f the un-banked in establishing a depsit accunt and a healthy credit relatinship that prmtes asset accumulatin, and c) turn a prfit. Many studies by such rganizatins as the Natinal Cmmunity Investment Fund, Fannie Mae, and the Federal Reserve Bank Bard, have been cnducted t quantify and explain the high prprtin f Americans wh have n checking and savings accunts in regulated banks and credit unin. Page 4

5 The Natinal Cmmunity Investment Fund is an independent trust and certified cmmunity develpment financial institutin whse missin is t increase the number and capacity f dmestic, depsitry institutins that are bth effective agents f lcal cmmunity develpment and sund financial institutins. In May, with the supprt f a grant frm the FannieMae Fundatin, the NCIF cnducted a cmprehensive study n the un-banked and published ne f the mst thrugh reprts that I have read n the subject. The reprt is entitled A Reprt n Innvative Prducts and Services fr Lw Incme and Un-banked Custmers and was published in May f In rder t supprt the prducts and services described in NCIF s reprt, I believe that cmmunity banks, thse relatively small and lcally based financial institutins are best prepared. Ging farther, minrity-wned financial institutins are even mre fcused n cmmunities where ur lw-t-mderate- incme fellw citizens live. The fact f the matter is that the initial wners funded these institutins with that ntin in mind. They remain in thse cmmunities tday althugh mst f them were funded mre than fifty (50) years ag. Tday, there are 167 minrity depsitry banks in the United States. Of these 49 are Black r African-American; 69 are Asian r Pacific Islander American; 30 are Hispanic-American; 17 are Native American r Alaskan Native American and 2 are Multi-Racial American. These banks are lcated in 96 cities and 30 states and 2 U. S. territries. In the aggregate, these institutins cntrl sme $93 billin in assets. Hwever, it shuld be nted that there are n special charters granted t these banks and they must cmply with all the banking laws and regulatins gverning all banks. While almst all are Page 5

6 prfitable and meet minimum capital requirements, they can ill affrd t incur the lsses attributed t prviding nrmal banking services t the un-banked. There have been funding initiatives by the federal gvernment such as the Bank Enterprise Award Prgram f the U. S. Treasury Department and the mst recent New Markets Tax Credit Allcatin prgram administered by the same department. Hwever, when applying fr such funding, minrity-wned banks find themselves cmpeting fr the limited resurces against much larger majrity-wned financial institutins. The result is that many f these smaller minritywned financial institutins are ften verlked and shut ff frm the kind f financial supprt needed t ffer nrmal banking services in disadvantaged cmmunities. While yu invited me her t make cmments, I wuld als like t make the fllwing recmmendatins fr yur cnsideratin: 1. Frm a true partnership with minrity-wned banks in this cuntry t fster the implementatin f the innvative prducts that are described in the NCIF Reprt. These institutins need t have initiative funds allcated t nly thse banks. After all, these institutins are already heavily regulated, regularly examined by gvernment agencies and have t meet strict criteria fr the maintenance f their respective banking charters. 2. One f the critical prblems facing the natin is financial illiteracy. Our children are nt being taught the imprtance f participating in the financial mainstream, even thugh they attend public schl daily. If we must teach science, math and the arts, surely ur presence here dictates that we empwer ur children in financial matters lng befre they are ready t be first time hmebuyers r befre they becme un-bankable. Page 6

7 3. Within this city is the Natinal Bankers Assciatin, which is the seventy year-ld trade rganizatin fr the natin s minrity-wned banks. It represents a cnvenient access t thse banks that have labred lng and hard t prvide the affrdable banking services we all wuld like t see available t all. Thank yu again and as I stated at the utset, access t the financial mainstream fr the unbanked is mre than simply being able t pen bank accunts. Indeed, equal access t the financial mainstream is a critical cmpnent f lcal develpment. Page 7

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