Impact Reflection | October 22, 2021
Earlier in my career, I was a bank teller in England and every Friday afternoon I remember lines out the door as customers came in to cash their paycheck or withdraw spending money for the weekend. The bank was a hub within the community, as well as a logistical necessity to access your accounts. With the rise of online banking and new mobile payment technologies, the role of your local bank has changed significantly over the last twenty years.
Alongside the rise of technology, the landscape of banking and credit union options has also expanded. Technology allows us to access our financial accounts and conduct business through the web at any hour of the day, meaning you are no longer limited to the banks located on your local high street.
This expanded landscape allows for considering additional factors, such as the bank’s mission, how they support nonprofits in your chosen community, the caliber of their customer service, and online banking options. The choice of where we bank is a key, though often unexamined, financial relationship for all of us. Choosing a bank can be a way to create positive alignment between your values and your personal finances.
Traditional, and Not-So-Traditional
Fundamentally, banks profit from lending the money you deposit to both individual and commercial borrowers. Some banks focus on business lending, some on consumer lending – and others focus on a combination of both within a particular community. Traditional large banks lend money to a wide range of borrowers and exclusively evaluate how profitable a project might be, without considering how the loan might impact environmental health or support a diverse range of small businesses and individual borrowers. These loans can include projects that may not match the values of the bank’s depositors, such as financing oil pipelines or private prisons.
Larger banks have historically focused on wealthy borrowers for both business and consumer loans, excluding large portions of many communities. In 1977, the Community Reinvestment Act (CRA) was passed to encourage financial institutions to help meet the credit needs of the communities in which they do business, including low- and moderate-income (LMI) neighborhoods. Initially, large banks had no internal expertise in that sort of lending, and many outsourced the responsibility for community lending to outside institutions.1
As an alternative to traditional banks, additional legislation was passed in 1994 to create a specialized category of banks that existed primarily to serve its community.2 These ‘community banks’ exist to serve the local community as well as shareholders. They tend to provide services to low- and moderate-income households that may not be supported by large traditional banks and make loans to small and mid-sized local businesses.
A Sampler of Options
If you are interested in knowing that your bank is lending your deposited money in ways that have a positive impact on your community, then community banks may provide good choices. We’ve profiled three banks as illustrations of different approaches:
Community Bank of the Bay
Based in Oakland with offices in Danville and San Mateo, Community Bank of the Bay was founded in 1996. They focus on providing affordable financing to local businesses and nonprofits to strengthen the local economy, with 80% of their loans supporting organizations in the Bay Area. Additionally, they offer customers the option to direct deposits to the Bay Area Green Fund. Created by the bank in 2003, it has loaned over $20M to green projects and has helped support multiple local organizations that focus on sustainable food systems, green real estate, environmental stewardship, waste reduction, and clean energy.3
Beneficial State Bank
Another local bank that focuses on community building is Beneficial State Bank, founded in 2007, with seven branches in California, Oregon, and Washington (including one in Oakland). Owned by a foundation, this mission-aligned bank is a certified B Corp and is vocal on issues of climate change and social justice on behalf of its clients. Beyond their suite of online banking options, their website also provides depositors a window into what types of businesses they lend to, from education and youth development to healthy food and fair auto loans. Beneficial State Bank also has a substantial group of nonprofit organizations as clients, accounting for 28% of total loans.4 In addition, the employees at Beneficial voted in 2020 to unionize. The bank sees this as a key step towards rightsizing the economic imbalances common in our broader financial system.
Unconstrained by geography, digital (or online) banks can extend their reach beyond the scope of a traditional branch to communities that might otherwise be ignored. OneUnited Bank is Black-owned and was founded in 1968 in response to Martin Luther King’s assassination. The bank has grown over time by buying other banks in Miami and Los Angeles, making it the largest black-owned bank in the US and has been digital since 2004. They are a designated Community Development Financial Institution (CDFI) serving low- and moderate-income communities. Over the past two years, they have financed over $100M in loans in communities such as South Central, Compton, Liberty City, and Roxbury.
In addition to traditional banking services, OneUnited supports financial literacy. They want their website to be a go-to site for financial literacy in black communities, with workshops and playlists available for all types of situations, including ‘starting a new career’ and ‘major life transitions’.5 They also founded the OneTransaction Conference, partnering with Visa and Fidelity. This annual event held on Juneteenth focuses on closing the racial wealth gap. With BIPOC financial experts leading workshops on home buying, creating and maintaining a new business, and how-to-sessions on creating a will, buying life insurance, saving, investing, and improving your credit score.
Investing in Your Community
Within the banking world, the examples above and many other community banks provide real opportunities to create local impact with your deposits while screening out funding for projects that may not align with your values. At North Berkeley, we are interested in providing opportunities for our clients to align their financial choices with values that support their chosen communities.
We appreciate that shifting away from a longstanding bank relationship means the chore of establishing new electronic links for autopay bills and other regular transfers, but it can also bring satisfaction from better alignment of your values. In an increasingly global world, opting to bank locally is one way to support resilient communities and the positive impacts of lending to small businesses, nonprofits, and local organizations.
North Berkeley Wealth Management does not endorse any specific banking institutions and is not affiliated with any of the banks referenced in this article. We always recommend due diligence when establishing a new relationship with a financial institution.
1 The CCM Community Impact Bond Fund is in many of our client portfolios. Formerly know as the CRA Qualified Investment Fund, it is managed by Community Capital Management. They were founded in 1998, catering to banks looking to meet community development investment requirements under the Community Reinvestment Act.
2 The legal concept of a Community Development Financial Institution (CDFI) was created by the Riegle Community Development and Regulatory Improvement Act of 1994, which also created the Community Development Financial Institutions Fund at the US Department of the Treasury.
About Matthew Gatt, CFP®
Matthew Gatt is a Lead Advisor at North Berkeley Wealth Management. He works with clients to align their financial lives with their personal values.
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