University of Virginia Library

A Modest Proposal For The Banks

By CHARLES WEIR

The banking industry has
had friends and enemies in this
country for quite some time.
The friends are those with
money, the enemies those
without. But banking keeps the
country's finances going, and
so an occasional look at banks
would seem a necessity for all
of us.

The most important person
to shape banking in America
was A.P. Gianinni. As the son
of an Italian merchant in San
Francisco, Gianinni was an
example of all that we are told
is great in America.

After working in his father's
dry goods store through his
early twenties, Gianinni saw
that the Anglo-American banks
were not providing the
financial services that were
needed by minorities. In 1905,
he believed that he could do
something about this. He was
brash and idealistic enough to
visit a bank vice-president
friend and ask him the simple
question, "How do I start a
bank:" Armed with the
answer, he walked out of the
door and founded the Bank of
America.

Today, I would dare say
that no one could found a
serious competitor to the
Bank of America any more
than he could found a
competitor to General Motors.
For a member of a minority
group to do this, the minuscule
odds would not even exist.

The government has made
attempts to aid in the
development of businesses, but
these are mostly paternalistic.
Black capitalism, one of
Nixon's grand ideas, has proved
to more rhetoric than
accomplishment. The record of
the Office of Minority Business
Enterprise has been without
distinction. While the OMBE
made some advances, it has
not yet addressed itself to large
scale business ventures as it
must, if it is to include more
people in the mainstream of
American financial le.

It is here that American
banks must take up the slack
of the U. S. Government, but
banks are handicapped by their
limited size. American banks
could not conceivably finance
the size and amounts of the
necessary loans, nor could they
weather the possible losses
involved. Banks are, first and
foremost, American
corporations, and must show a
profit on the balance sheet.

One possible solution to
this size problem would be to
set up a system of government
guarantees for bank-made
loans. Unlike the present
system, it would have three
attractive points. First, it
would cut down on the federal
bureaucracy by eliminating
certain present agencies. What
could replace these would be a
national coordinating office
that would serve as a national
storehouse of information and
a national board of review to
insure that federal regulations
were being upheld.

The second advantage to
flow from this plan would be
decentralization of
government; it would put the
local banks to work. No longer
would there be the duplication
of local banks making loans
while federal governmental
offices down the street were
making similar loans to other
companies in the industry.

Still, a third
advantage would be that banks
would be able to loan out more
of their money if they were
certain that the government
would insure the payments.
While banks like to think of
themselves as little
homebuilders or savings
institutions for   junior's
college, the hard cold tacts are,
they want their money back
and at a profit.

The Small Business
Administration's present
system of guaranteeing a
ninety per cent maximum to a
bank for a loan would
probably have to be increased.
This should only be a few
percentage points, because the
higher volume of loans would
effectively cut down the
necessary profit on each loan.
No longer would businesses
have to approach a bank for a
loan, be sent to the SBA for a
guarantee and then return to
the bank for the remainder of
the money. All this could be
carried out at the bank the first
time around.

In order to the banks to
make themselves more aware
of what is going on in their
communities, they would be
forced to appoint more
minority members to to their
advisory boards, too. Here, of
course, it might be argued that
few banks would be willing to
do this. Also, it might become
necessary for the federal
government to set up
guidelines for the loan
guarantees, just as it has been
to set up guidelines for
compliance with federal school
desegregation laws.