Since the collapse of Silicon Valley Bank, the banking industry, federal regulators and the U.S. government have coalesced in an impressive show of solidarity to “shore up the banking system.”
Eleven of the nation’s biggest banks came together to provide a $30 billion rescue of beleaguered First Republic Bank. Meanwhile, two of the nation’s largest banks, JPMorgan and Citi, agreed to not poach staff or business from stressed regional and community banks.
While this has been an impressive recognition that the fate of our banking system is indeed interdependent, it’s been less clear whether such solidarity will be extended to those who are further from wealth and influence.
Of special concern to us: Whether First Citizens Bank, which purchased SVB at a discount of $16.5 billion, will honor a previously negotiated community benefits agreement that promised $11 billion — $9 billion earmarked for California — for the financial and economic infrastructure of largely low-income communities of color.
This agreement resulted from SVB’s acquisition of Boston Private two years ago, a move that required approval from U.S. banking regulators. In the spirit of interdependence — and because of the Community Reinvestment Act, long-standing federal legislation that guarantees a public voice in such decisions — the bank agreed to the demands of community organizations, demonstrating how a merger could also ensure local investment.
The full $11 billion agreement included $4 billion in small business loans of $1 million or less; $4 billion in community development loans and investments; $1 billion in residential mortgages to low- and moderate-income borrowers; and $60 million in charitable contributions.
It’s not enough to correct the racial wealth gap that left so many without a cushion over the last three years of the pandemic, but it’s a start.
SVB has now stumbled — and not because it agreed to help local communities but because it mismatched the maturities and yields of its deposits and its assets. Tech titans, who are often libertarian in their political leanings, have insisted that the federal government take extraordinary measures to save wealthy depositors, SVB and the banking system. But they have been silent on whether the obligations to California’s disadvantaged communities will be honored as well.
We think they should. After all, while bankers generally embrace an ideology that markets are efficient, failures are individual and government should always stand back, that philosophy always seems to evaporate when their own assets are at stake. The massive rescue during the 2008-09 financial crisis, the expansion of government support to employers and workers during the pandemic, and the rush of assistance in recent weeks affirms what we already know (and financiers are reluctant to admit): markets are volatile, vulnerability is systemic and government has a role.
With public support should come public benefits. Places where new entrepreneurs can start and maintain a business, where neighborhoods are invested, where prospective homebuyers aren’t living paycheck to paycheck in order to make a mortgage — those are the types of communities that can better sustain themselves and anchor a healthy bank.
To make the banking system whole, we also need to make our communities whole. An important step would be for First Citizens Bank to fully honor and implement the already-negotiated community benefits agreement.
What communities know and is in our hearts: this is our economy. We create it together, and as the recent bank rescues show, we safeguard it together, too. And because of that, we will only thrive if we ensure that we all benefit together.
Paulina Gonzalez-Brito is the CEO of the California Reinvestment Coalition. Manuel Pastor is director of the Equity Research Institute at the University of Southern California. They wrote this commentary for CalMatters.
