Statement by John P. LaWare, Member, Board of Governors of the Federal Reserve System, before the Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, September 24, 1993 - Statements to Congress - Transcript

Federal Reserve Bulletin, Nov, 1993

Statement by John P. LaWare, Member, Board of Governors of the Federal Reserve System, before the Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, September 24, 1993

I appreciate the opportunity to speak to you today about the challenges that face banks in meeting the service and credit needs of low-income and minority communities. I commend the committee for holding this hearing in a local community in Prince George's County where questions pertaining to these factors have been raised.

It is our understanding that the committee is interested in developing a profile of current lending activity in a specific neighborhood in Prince George's County and then periodically reviewing the record for changes in bank credit and service delivery. As a starting point for analysis, we were furnished a list of thirty-nine census tracts and a list of banks and thrift institutions that were identified by the committee as having a branch or office located in these specific census tracts, or, as I will refer to it in the testimony, the "target area."

I toured the target area with the Director of Housing and Community Development for Prince George's County. During that visit we discussed demographics, housing, and other conditions in the county as a whole, and in the target area specifically. I saw many encouraging developments in some areas--and opportunities in others--which I will address later in this statement.

First, I would like to comment on some of the specific characteristics of the neighborhood. I will make some general observations about the overall Home Mortgage Disclosure Act (HMDA) data for the area. Then I will briefly discuss the banks for which the Federal Reserve is the primary regulator and that are located in the target area. Finally, I would like to acquaint the committee with some of the initiatives being undertaken by the financial institution regulators, and by the Federal Reserve specifically, to address credit availability for underserved areas.

CHARACTERISTICS OF PRINCE GEORGE'S COUNTY

Prince George's County is an interesting area for this type of study because it has undergone some massive changes in population and demographics during the past ten years. The county estimates the 1992 population at roughly 750,000 people. This is an increase of 20,000 people just since the 1990 census and an increase of 85,000 in population since the 1980 census.

The county's population is 58 percent minority, including 50 percent black and 8 percent Hispanic, Asian, and other minorities. This represents a shift since 1980, when the majority of the county's population was white. The shift is a result of the out-migration of whites coupled with the in-migration of blacks, many of whom came from Washington, D.C., in search of better housing values and public school systems. Many of the blacks who have moved into the county represent middle- and upper-income families. Prince George's County has both the highest median income for a black population and the largest number of black-owned businesses of any county in the United States.

The thirty-nine census tracts that make up the target area of interest to the committee differ from the county over all in some demographic characteristics. The population of the target area is 159,000 and consists of 82 percent blacks and 3 percent Hispanic, Asian, and other minorities. Even though this area has a greater percentage black population than the county as a whole, the median income for the target area of $46,476 is very close to the county median of $49,031. However, the median home value for the target area of $111,779 is lower than the county median of $123,995. The percentage of owner-occupied units in the thirty-nine tracts (56.9 percent) is roughly equivalent to that in the county as a whole (56.2 percent).

During my tour of the target area, I observed that, as was expected, most of the older, lower-income housing is closest to the District line. Some of the residences in these areas are currently undergoing rehabilitation, and some of those rehabs are being financed by the county government. Others are being financed privately. Many other homes in the general area apparently could benefit from repair or improvement. The commercial areas in those neighborhoods are small retail strips. We did see several bank branches in certain commercial areas near the District line; however, there were also quite a few check-cashing operations and liquor stores that also frequently cash checks.

As you travel farther out Central Avenue toward Enterprise Road, there is a lot of new housing and commercial development. The housing stock reflects an upward shift in income, with recently built larger, more expensive homes. I was struck by the apparent diversity of income within the relatively small area of the thirty-nine targeted census tracts.

As indicated by the attached maps, we have plotted the locations of all the depository institutions with offices in the target area.(1) Six of these institutions have branches or offices along the narrow Central Avenue corridor. The largest number of branches (twelve) are clustered in the southwest area of the designated community. That southwest corner of the target area includes census tracts with a population that is 60 percent to 80 percent minority, and with median family incomes that fall in the range of 80 percent to 120 percent of the Metropolitan Statistical Area (MSA) median income ($54,173 in 1990). The remainder of the branches are scattered throughout the neighborhoods. The areas with the lowest income do not have many branches of banks or savings and loans.