Banks come back to urban America, 'redlining' fades away
From Correspondent Lisa Price
September 17, 1997
Web posted at: 11:01 p.m. EDT (0301 GMT)
CHICAGO (CNN) -- Although the lines on the map were invisible, they separated places where banks would do business from neighborhoods where they wouldn't. This long-practiced policy of discrimination, called redlining, is finally being reversed.
Though thousands of miles apart, inner-city neighborhoods like New York's South Bronx, Los Angeles' South Central and many others have long shared a common border. It was drawn years ago by financial institutions reluctant to do business with residents in low-income, minority communities, like Chicago's Austin neighborhood.
The practice, known as redlining, cast a big shadow on thousands of communities across America."As cities became blacker and more Hispanic, many financial institutions literally pulled up stakes, closed their branches and moved out of lower income neighborhoods," said Malcom Bush, from the Woodstock Institute.
Redlining is being reversed, after a gradual realization that there is money to be made. Where they once feared default, banks now welcome business.
"People want to borrow money, we want to lend it. It's the best thing banks can do," said Mary Decker of First Chicago Corp.
In the Austin neighborhood, ground has been broken for the first new bank in 71 years. One of its branches had enough confidence in retired factory worker Otto McGrath to loan him $25,000. McGrath, an Austin resident, is 80 years old, with only modest collateral.
"What we have been telling you, years ago, is that there is money to be made ... and now they begin to see (it)," he said.
First Chicago Bank is investing $2 billion in several of the city's south side communities. New homes, grocery stores, movie theaters and small businesses will occupy once-bleak blocks.
"The profit is comparable to profits being made in similar loans," explained Decker, "the default rate is similar, you don't get more people defaulting on their loans or anything like that -- these are good loans." Loans that banks expect will yield profits of between 10 and 15 percent.
Change may be slow, but the red line that once surrounded these neighborhoods has been replaced ... by a bottom line.