Robert Teresko, president of the Beverly Bank, smiles stiffly and looks nervous as he walks into the conference room to face the public and sign the agreement.
"This agreement establishes a good working relationship between community and bank," Teresko begins. "Through our discussion, we've come up with unique products that will benefit the entire market we serve."
And with that, Teresko sighs and signs the document on the table before him, pledging his bank to try to make $20 million in housing, commercial, and student loans to several credit-starved communities on the far south side.
When Teresko looks up, the 25 or so black men and women who sit around the table begin clapping. Teresko's smile broadens.
And for good reason. This is an innovative achievement, swimming against the tide of two decades or so of disinvestment and redlining by many city banks.
The Beverly Bank, headquartered at 1357 W. 103rd St., a white-run institution with assets of more than $200 million, has come together with residents of Roseland, a working-class black community hit hard by years of recession, to forge a deal that may have benefits for neighborhoods, black and white, across the south side.
The pact was not easily reached by any means. It required days of back-room wrangling, as well as threats of lawsuits and federal investigations by the residents.
"There are some banks who have been through a similar process, and they might call it blackmail," says Teresko. "That's not my word. They [the residents] didn't put a gun to my head. They didn't make me sign anything. I didn't give them anything out of guilt, just to get them out of my office. Let's just say that through the process of meeting and talking, we came to understand that many of our needs were the same."
"I want to be positive," adds Willie Lomax, executive director of the Chicago Roseland Coalition for Community Control, the community organization that negotiated with the Beverly Bank. "I believe Bob understands our needs. I think he's sincere about helping us. But I have to be honest. We made use of some tools of the law to get the bank here. We had to play hardball."
The tool was the Community Reinvestment Act, a federal law passed in 1977 that requires banks to make loans to residents and businesses in their service areas.
"The service area is basically a circle drawn around the bank that includes its home communities," explains Josh Hoyt, vice-president of the Woodstock Institute, a not-for-profit think tank that advises the Roseland Coalition and other groups on banking matters.
"The banks define their own areas, and they have a legal responsibility to meet the credit needs of all the communities within that service area, including the low-income ones."
The CRA does not come out of the toolbox, however, until a bank proposes to expand, establish a new branch, or somehow change its charter. Then the bank must apply to the Federal Deposit Insurance Corporation, a federal entity that regulates banks.
Before approving the charter change, the FDIC, among other things, determines whether the bank has met the credit needs of its service area. The public's comments are solicited; community organizations can demand a public hearing. According to the Community Reinvestment Act, the FDIC is supposed to deny a charter change if the bank has a poor neighborhood lending record. Over the years, many banks have avoided the hearings by quickly agreeing to make loans to low-income areas, or even contributions to community groups.
The Beverly Bank's community area includes most of the ethnically and economically diverse neighborhoods between 75th Street and the city's southern border, east from Cicero Avenue to the Calumet Expressway. Roseland is at the eastern edge of this territory.
"In some cases banks will gerrymander to get around the reinvestment act," says Jean Goodwin, one of two staff attorneys for the Legal Assistance Foundation who represent the Roseland residents. "They'll draw their boundaries in such a way to exclude poor communities, even though residents from these areas are bank customers. We did not have this problem with the Beverly Bank. They acknowledge that their service area includes not only mostly white areas like Beverly and Mount Greenwood, but black communities like Roseland."
Instead, the problem was that the Beverly Bank was steadily dropping service to these communities. "It's not just the Beverly Bank," says Hoyt. "It's part of a national trend that started with deregulation. Generally banks are regulated by place, product, and price. Place regulation means restrictions on things like interstate banking, to curb the historical fear of big banks.
"Product regulation has to do with the kinds of services banks can offer, whether they can sell insurance or real estate, that kind of thing.
"And price, generally, has to do with interest rates. This limits the interest offered on a passbook account to, say, 5 1/4 percent, or the interest charged for a loan to 8 percent. In the banking world, it's known as 5-8-3. That is, take the money at 5 percent, lend it at 8, and be out on the golf course by three."
Congress began deregulating the banks in the late 1970s, as bankers complained of stiff competition from outside institutions.
"It really wasn't fair," says Hoyt. "You'd have nonregulated companies competing with banks who were regulated. There are insurance companies, for instance, who finance big real estate deals. The federal regulators had two choices. They could either regulate the banks' competitors, or they could pull back on regulation. They choose the latter."
As a result, the federal government dropped many safeguards intended to protect the small customer. As regulation loosened, service charges were slapped on low-balance, multiple-transaction checking and savings accounts. In 1984, savings account fees rose 35 percent nationwide, according to the Woodstock Institute. Smaller banks increased their checking account fees by as much as 42 percent. Minimum deposits, as high as $300 in some Chicago banks, were required to open savings accounts. And banks closed neighborhood outlets in working-class communities.
"The result is that more and more poor people depend on currency exchanges, which have stiff service charges," says Hoyt. "We did a study that shows the average mother on welfare pays $11 a month to cash her checks and write her bills. That's 3.2 percent of her income. That would amount to $93 a month for a person with a $35,000 salary.
"We also find that banks are under market pressure to make large loans. You can make money on a $35,000 mortgage to a guy in Roseland. But you can make more money lending $150,000 to some guy on the lakefront. You get a higher fee. Because of increased competition, there is more pressure to go for upscale markets. That means the minority borrower in Roseland is hit with a double whammy."
The Beverly Bank, of course, was not insulated from these trends. Three years ago, the bank discontinued its residential mortgage program. Less than 32 percent of the bank's commercial loans last year went to its community area, according to the Woodstock Institute. And the bank closed its only facility in an all-black area, a drive-through bank on 103rd Street.
"We stopped giving home loans when interest rates took off," says Teresko. "We were getting burned. Interest rates were as high as 12, 15 percent and we were fixed to long-term mortgages at 7 percent."
At the same time, the bank opened an office in Orland Park, while its holding company (Beverly Bancorporation, Inc.) bought a bank in Matteson, and opened another branch in Homewood.
"If you go into their main branch in Beverly, you'll see that a lot of the depositors waiting in line are black," says Goodwin. "But most of the people going upstairs for loans are white. It seemed to us they had a clear pattern of moving their base to the southwest suburbs."
As a result, the bank became the target of protests led by the Reverend Al Sampson, an ally of Mayor Washington. He led marchers on the bank, called for a boycott, and even attempted to link the issue to Beverly resident Thomas Hynes's mayoral campaign.
"Hynes has to first clean up his ward before he can discuss managing [the] CHA, the lakefront, or the city," Sampson told the Daily Defender.
"They were attacking Tom Hynes, and that I don't understand," countered Teresko, adding that Hynes has no formal relation to the bank.
"The real problem with some of the early protests was a lack of accountability," the Roseland Coalition's Lomax acknowledges. "Who's to say the protesters aren't some fly-by-night bunch. We have a lot of unemployed people; you can get them to protest without much problem. The real test is serious negotiations. Will you show up on time? Are you committed to seeing a process through? I can understand how the bank may not know who is for real."
Lomax immediately tried to convince the bank leaders that the Roseland Coalition was a viable community-based organization. "We were formed in 1975. We operate programs for seniors, job training services, and a legal clinic. All you have to do is come by our office here on 110th Street, and you'll see we're for real," says Lomax. "We felt all along that we could negotiate a settlement with the bank. We just needed to get the talks going. Our break came in the early summer."
That's when the Beverly Bank made public its plan to open a new branch in Oak Lawn, another southwest suburb. On June 25, Lomax notified the FDIC that his group was preparing a report on the bank's CRA performance, and Daniel Burke, a staff attorney for the Legal Assistance Foundation, wrote Teresko, asking that talks begin.
"It was tense at times," says Lomax. "I remember when I went to the bank, and asked to see the CRA file. One thing led to the other, and the next thing you know Bob Teresko was yelling at me. We were in the lobby, and customers were watching. He said, 'Why are you giving me a rough time?' And, 'I don't appreciate what you're doing.' And, 'Why'd you get a lawyer?' We calmed down, but that shows you what it was like."
In August, the coalition's advisers turned on the heat. Burke requested a formal FDIC hearing on the Oak Lawn application. And Elspeth Revere, president of the Woodstock Institute, wrote Wisconsin senator William Proxmire, chairman of the U.S. Senate's Banking, Housing and Urban Affairs Committee, complaining of lax FDIC enforcement.
"Proxmire wrote to William Seidman, the newly appointed director of the FDIC, asking for an explanation," says Hoyt. "The American Banker, which is a very influential trade newspaper in the banking business, ran a story on the Proxmire letter. And then Fernand St. Germain [chairman of the House Banking, Finance and Urban Affairs Committee] wrote a letter to us. He said he had seen the American Banker article, and he wanted to know more about the problem. It was obvious that the Democrats were using the issue to flex their muscles with Seidman. They were telling the FDIC to take the matter seriously."
A few days later, the Beverly Bank agreed to negotiate.
"I don't think they had much choice," says Goodwin. "If they didn't negotiate, we'd subject them to a public hearing with the FDIC. Even if they won that hearing, we could appeal to the courts. It would only take more time, and who knows when they would get their Oak Lawn application approved."
"We were not forced to negotiate," says Teresko. "We wanted to. There's nothing worse than a level of mistrust dividing a bank from a community."
In any case, from the outset it was clear that the two groups had differences. For starters, some bankers did not feel that they should be compelled to take the risk of investing in a poor community, just because of community protests.
This matter was settled early, which left a disagreement over what kinds of loans should count toward meeting the investment goal of $20 million.
"The bank wanted to count consumer lending and home equity loans toward the total," says Hoyt. "A consumer lending loan is basically a credit card loan. And home equity means you get a loan based on the equity of your house. You can use the money to go to Las Vegas, if you want to. These are good loans, we're happy the bank makes them. But we don't believe they solve the housing or business needs of the area. We wanted the agreement to mainly include home improvement loans, mortgages, and small business loans."
"Yes, there were times when tempers flared," says Teresko. "But it had less to do with anger than fatigue. We were tired of sitting there for hours and talking. I don't think we were ever too far off."
Eventually, the bank agreed that no more than $2.5 million in home equity loans would count toward the $20 million package. The final agreement, signed in September, pledges at least $5 million in single family mortgages, $5 million in home improvement loans, $5 million in business loans, $3 million for student and other loans, $2 million for loans to purchase foreclosed and abandoned homes, and the addition of a Cash Station in Roseland. Using the Cash Station, Roseland residents can have their government checks deposited directly in their Beverly Bank accounts and can withdraw cash the same way, all without leaving their neighborhood.
"The foreclosure program is especially important because we have a lot of foreclosed and abandoned homes in Roseland," says Lomax. "Sometimes there are auctions, but usually only speculators buy the homes. They do a few repairs, and then sell them, but most likely the homes end up on the auction block again.
"This program is for people who will live in the homes, not speculators. The bank will preprocess applicants to make sure they have the capability of maintaining the home, and to make sure they understand what they're getting into."
The Cash Station accounts are targeted for the poor, who now depend on currency exchanges to cash checks and pay bills.
"We have to give the bank credit for this program; it was their idea," says Hoyt. "It enables people to open an account with no minimum deposit requirements. Customers will have a monthly $2 service fee. But they can pay their utility bills without a service charge. All told, it costs less than a currency exchange. And there will be a Cash Station machine in Roseland, from which people can handle their transactions."
For now, the Cash Station accounts will handle only government benefit checks, like welfare or social security.
"If it works well, we hope to expand it to include other checks," says Teresko. "That's the way I look at all of these programs. They are goals, not limitations. If there's a demand, we want to expand them. This is planning for the future."
"The $20 million is a pledge, and not a guarantee," adds Lomax. "The bank could break their promise, and not make any loans. But I don't think they will. For one thing, we're spreading the word. Already, people are calling, asking about mortgages. We'll leaflet the area and talk to the churches. So, the bank's going to have applicants. If the residents don't get loans after that, well, the regulators will hear about it the next time Beverly wants to expand.
"But, I don't think it'll come to that. Like I said, I think Bob Teresko's learned something about us, and we've learned something about him. We agree that community loans are not a lost cause. And that investing in neighborhoods can work."
Art accompanying story in printed newspaper (not available in this archive): photo/Bruce Powell.