26

judged on their merit irrespective of the race of the applicant."

He said the bank does not have one officer who handles only minority

business loans, and explained:

In the summer of 1969, we

formed a sort of

ad hoc committee and announced in the paper that
we were encouraging this kind of business, that
is, applications from minority businesses that
were operating in the District of Columbia.
certainly was not a minority officer, it was just
an ad hoc committee designed to develop business.

That

In answer to a question concerning review procedures of bank officers, Mr. Daniels stated:

Our branch officer at various branches

would have

a certain loan authority, the amount of money that
they could loan. Now, within that authority admittedly,
they may make or not make a loan. But our loans to a
business of any size would probably first be seen by
that branch officer, or directly to our commercial
lending department, you see. And then if it gets a
size larger it goes to a board, a committee of the
Board of Directors for approval. There are various
gradients as you can see from one side to another.
But there's nothing in any of our forms or any of our
discussions or any of our statements on policy that
we have at the bank that would indicate there is any
discrimination whatsoever. That's our basic procedure.

Asked about reviews of officers approving or disapproving loans,

Mr. McConville replied:

After a loan is made, a file is made up and it is
reviewed by the commercial loan officer, and in
many cases by myself. There is a review of every
loan made in the bank. There is not a review of
declined loans. I know what you're driving at.
Many times a loan can be rejected and we don't
know it. We try to police it. We have pretty
open lines back and forth, but it can happen.

Asked whether the bank had a quota system, Mr. Cassidy responded:

If anything, perhaps we might have the reverse of
the quota system. We are making a special effort.
We are trying to impress upon all of our officers

36-910 0-74- pt. 1 - 12

27

and employees that there is an awareness that we
have to help our community, and have to be especially
sensitive to their loan requirements.

And asked how a loan is normally processed in-house, Mr. Cassidy

answered:

The applicant will speak to a loan officer who will try to develop his background, try to develop and evaluate his financial information that he has furnished, make a credit check, consider the purpose of the loan and how it is to be paid, and he will approve it if it is within his authority. If the amount is larger than the particular loan officer's authority, it will be referred up to somebody with a greater lending capacity, greater lending authority. Mr. Cassidy denied that specific loan officers handle minority

loans:

Bank:

Any loan officer handles any customer who comes in.
We do have our SBA centered in one officer. This is
for administrative convenience. There is a lot of
paperwork involved in it. And in order to develop a
skill at it, and in order to better control it, there
is one man handling that. One man specializes in it,
so that when any other loan officer determines that an
SBA loan could be approved in any given situation, he
will refer it to this officer.

A similar situation was described by Mr. Jennings of Riggs National

As I said, whether they are minority or non-minority,
to a small businessman, I want those denials to come on
down to be seen by a senior lending manager.

don't see all of them.

I see some of them.

know they are looking at them.

Now I
And I

And I know our policy

is to make loans if we believe that he can succeed.

In response to a question about quotas and a single minority loan

officer, Mr. Donegan of Riggs bank replied:

We do not have any quotas, nor do we have any single
officer responsible for loans to minority business-

men.

To the contrary, applications are received by

28

any lending officer of the bank. In the case of
SBA loans we do, and the larger business loans,
they are referred to the commercial loan depart-
ment where they may be assigned there to any one
of several officers. But the application itself
when it is prepared and ready for consideration,
is considered by myself and other senior lending
officers at the bank. If they are large enough they
are presented to our officer's loan committee. But
they are thoroughly reviewed, they are not dependent
on the decision of any one man, other than some very
small loans which may be applications that come în
that may be within our lending officer's authority.
As Mr. Jennings pointed out, however, we are very
much interested in those loans which are declined,
and our instructions, and they are firm instructions
to our branches particularly, in the case of a business
loan which is declined, we want to see the application,
and before the answer is given to the applicant.
they are reviewed by senior management. In some cases
those decisions are reversed.

But

In summary, the bankers present denied that they employed the

use of quotas or minority loan officers. However, they indicated that it was more expedient for one officer to handle SBA loans because of

the paperwork involved.

AFFIRMATIVE APPROACHES

29

There are several avenues towards finding solutions to the financial difficulties of minority businessmen.

Regulations which insure against discrimination by banking institutions are but one remedy. Innovative affirmative programs must be undertaken by the private and Federal sector if minority businessmen are to be dealt with in a realistic manner.

Several large city banks have instituted programs which deal affirmatively with the problems inherent in minority business development. John Gloster, President of the Opportunity Funding Corporation described a program undertaken by the Hyde Park Bank in Chicago, a relatively small bank which has made $4 million in minority business loans over the past three years with an excellent success record. Mr. Gloster explained:

To do so, Hyde Park created a special unit within
the bank staffed by experienced white lending
officers, as well as blacks trained by the banks,
who literally lived with their clients during the
life of the loan. Despite the additional cost of
this special unit, Hyde Park found that, while
the return was slightly lower than on the remainder
of its loan portfolio, it did in fact make money
on its minority loans.

Mr. Gloster also told the Committee about a somewhat different program in Chicago. Several major banks in that city underwrote the operations of a highly competent technical assistance agency, the Chicago Economic Development Corp., and earmarked several million dollars for loans packaged and monitored by that agency. According to Mr. Gloster, it was not accidental that these programs occurred in Chicago. Adlai Stevenson III, when Treasurer

30

of the State of Illinois, introduced a plan by which deposits of

state funds were linked on a formula basis to the banks' performance in making inner-city loans. Mr. Gloster suggested, "This linked

deposit plan might well be considered as an approach to be followed

by the District and Federal Governments in making deposits in

Washington banks."

He also described another model in Denver, Colorado:

There, several of the city's leading banks absorb the
salaries of key personnel of a technical assistance
agency headed by a capable and aggressive Mexican-
American CPA,
Like the Chicago Economic Development
Corporation, the Colorado Economic Development Agency
packages and monitors minority loans for those banks.

Mr. Gloster stated that the bank programs in Chicago and Denver came about in response to pressure from their respective communities. He said that he did not believe that the private sector would voluntarily spend money to initiate a program of In both cases the Federal Government was involved; the Chicago Economic Development Corporation received funds from

that nature.

both OMBE and Model Cities.

The Washington MESBIC

A MESBIC, (Minority Enterprise Small Business Investment

Corporation) is a privately owned and federally regulated investment company. It provides equity capital and long term loans to minority

businessmen.

A MESBIC is established when private investors put up a minimum of $150,000 in capital, incorporate as an investment company, and obtain a license to operate from the SBA. Once operating, it is eligible to borrow $2 from the SBA for every $1 of private