It's Complicated: Banks' Messy Relationship With Community Development

When it comes to corporate money in the U.S., you can’t get much bigger than the big four: JPMorgan, Bank of America, Wells Fargo, and Citigroup. At IP, we’ve followed the major banks’ philanthropic activities with interest, noting a unified push over the past few years to fund youth employment and skills development. As well, we've been reporting how the big banks are stepping up more often to join longtime foundation players in the asset building field.

In the world of financial inclusion funding, giving by corporate banking giants sometimes goes unnoticed. CDFIs and similar entities, such as local credit unions and loan funds for affordable housing, don’t get a lot of media coverage. But they can be the glue holding low-income communities together, or the agents behind community-level, equitable urban regeneration.

That’s why a recent spate of grants from NeighborWorks America to 19 nonprofit CDFIs caught our eye. Meant to boost low- and middle-income homeownership, the $48 million comes from an organization whose funding partners include a whole litany of banking giants: JPMorgan, Wells Fargo, Citi, MetLife, and Bank of America, as well as foundations like Kresge, MacArthur, and Robert Wood Johnson.

As it turns out, these latest grants weren't so philanthropic. They’re part of a NeighborWorks initiative called Project Reinvest, which draws from a very specific source: Bank of America’s historic $16.65 billion settlement with the Department of Justice for fraud leading up to the 2008 financial crisis. As part of that settlement, BoA had to cough up $122.5 million to NeighborWorks America to provide down payment assistance, foreclosure management, and financial stabilization services to people hit hard by the mortgage crisis. 

While Project Reinvest doesn’t exactly qualify as philanthropy, NeighborWorks is an important (and sometimes controversial) nexus for community development funding. Along with its network of over 240 community finance nonprofits across the country, it has regularly partnered with the Department of Housing and Urban Development in its efforts to fund community development. The strength of the organization lies in its broad partner network—local CDFIs and community lenders who together invested nearly $2.4 billion into rental housing during the last fiscal year.

In light of the Trump administration’s proposed cuts to HUD’s budget, NeighborWorks may see a drop in government funding during the coming years—meaning it may have to grow its fundraising from private sources. Its partnerships with banks are likely to become only more important, and we're betting the same will be true for other groups in the community development and financial inclusion space. 

Meanwhile, banks are an increasingly promising source of funds for such work. When the DOJ isn't strong-arming them into giving, the banking giants have seen the advantages of funding community development, as a post-2008 public relations measure if nothing else. A more hopeful take is that more bank leaders have really come around to the view that inequality undermines the financial sector's bottom line over the long term, since it means that working and middle-class consumers have less spending power. (There's only so many financial products you can sell to the top 1 percent.) Related to this, as we've reported, banks been involved in partnerships with nonprofits to develop new low-cost products and services designed to meet the needs of low-income Americans. 

Whatever is really going on here, there's no question that banks are playing an ever bigger role when it comes to funding efforts to help low-income people and communities get to a better place financially.