County Attorney
José R. Rodríguez


Monday - Friday
8:00am to 5:00pm

500 E. San Antonio
5th Floor, Suite 503
El Paso, Texas 79901
Phone (915) 546-2050
Fax (915) 546-2133
comments
@ca.epcounty.com

  • El Paso County Attorney Local Lending Practices
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  • Testimony before the Texas Senate Business and Commerce Committee Subcommittee on Interim Charge #4 relating to Local Lending Practices, January 9, 2002

    Good morning:

    I'M JOSE RODRIGUEZ , EL PASO COUNTY ATTORNEY. AS COUNTY ATTORNEY, I REPRESENT EL PASO COUNTY, THE EL PASO COUNTY HOSPITAL DISTRICT, AND THE STATE OF TEXAS IN CERTAIN MATTERS, INCLUDING RENDERING LEGAL ADVICE ON THE SELECTION OF LOCAL BANK DEPOSITORIES FOR PUBLIC FUNDS.

    INTRODUCTION

    I THANK THE COMMITTEE FOR ALLOWING ME THE OPPORTUNITY TO TESTIFY ON ISSUES PERTAINING TO ACCESS TO CAPITAL, INCLUDING THE AVAILABILITY OF LOANS TO SMALL BUSINESSES. MY INTEREST IN THIS SUBJECT STEMS NOT ONLY FROM MY ROLE AS LEGAL ADVISOR TO EL PASO COUNTY AND OUR HOSPITAL DISTRICT, BOTH OF WHICH CONTRACT WITH FINANCIAL INSTITUTIONS TO HOLD OUR PUBLIC FUNDS AS BANK DEPOSITORIES, BUT ALSO FROM MY INVOLVEMENT WITH THE EL PASO FAIR LENDING COALITION, AN ORGANIZATION MADE UP OF INDIVIDUALS, ORGANIZATIONS, AND SMALL BUSINESSES WHOSE ULTIMATE GOAL IS ECONOMIC SELF-DETERMINATION FOR EL PASO. OUR SPECIFIC GOALS INCLUDE

    PUTTING PUBLIC MONIES IN COMMUNITY MINDED FINANCIAL INSTITUTIONS OR BANKS,

    GROWTH OF INSTITUTIONAL ALTERNATIVES TO CHAIN BANKS,

    FINANCIAL LITERACY FOR ALL EL PASOANS, AND

    AN END TO PREDATORY LENDING. TODAY, I WANT TO TALK ABOUT WHY ACCESS TO CAPITAL IS IMPORTANT TO EL PASO; OUR FINANCIAL INSTITUTIONS' RECORD ON INVESTMENT IN EL PASO; AND, OUR RESPONSES AT THE LOCAL LEVEL TO THE LACK OF ACCESS TO CAPITAL IN OUR COMMUNITY.

    THE IMPORTANCE OF ACCESS TO CAPITAL

    ACCESS TO CAPITAL, PARTICULARLY ACCESS TO SMALL BUSINESS LOANS, IS CRITICAL TO THE ECONOMIC DEVELOPMENT OF ANY COMMUNITY, BUT ESPECIALLY FOR EL PASO. WE ESTIMATE THAT 80 TO 90 PERCENT OF THE EL PASO ECONOMY IS DRIVEN BY SMALL BUSINESSES. IN RECENT YEARS MUCH ATTENTION HAS BEEN FOCUSED ON THE ECONOMIC ISSUES FACING EL PASO AND OTHER BORDER COMMUNITIES. WITH TWICE THE NATIONAL UMEMPLOYMENT RATE AND THE LOWEST PER CAPITA INCOME OF ANY CITY ITS SIZE, EL PASO FACES ENORMOUS ECONOMIC CHALLENGES. PROPOSALS TO STIMULATE ITS ECONOMY INCLUDE BUILDING OUR TRANSPORTATION INFRASTRUCTURE, ATTRACTING NEW NAFTA RELATED INDUSTRY, AND DEVELOPING A BORDER HEALTH INSTITUTE AND OTHER HEALTHCARE ENTERPRISES. DESPITE RANKING 23RD IN POPULATION IN THE NATION AND BEING THE 5TH LARGEST CITY IN TEXAS, EL PASO 'S TAX BASE RANKS 156TH. INSTEAD OF GROWING, EL PASO'S TAX BASE IN THE PAST 10 YEARS HAS BEEN SHRINKING IN COMPARISON TO CITIES LIKE AUSTIN OR SAN ANTONIO. NOT SURPRISINGLY, A FEW YEARS AGO A NATIONAL SURVEY SHOWED EL PASO RANKING LAST AMONG 100 CITIES IN THE ABILITY OF ITS RESIDENTS TO EARN AND SAVE MONEY.

    CLEARLY, FOR ITS ECONOMIC INITIATIVES TO SUCCEED, EL PASO MUST BE ABLE TO ATTRACT INVESTMENT OF CAPITAL, INCLUDING INVESTMENT BY LENDING INSTITUTIONS. AFTER ALL, BANKS AND OTHER FINANCIAL INSTITUTIONS ARE THE LIFE BLOOD OF A HEALTHY ECONOMY; WITHOUT BANKS' INVESTMENT IN THE COMMUNITY, I.E., PROVIDING ACCESS TO CREDIT AND SERVICES, NEW JOBS WILL NOT BE CREATED AND THE LOCAL ECONOMY WILL SIMPLY NOT FLOURISH.

    EL PASO FINANCIAL INSTITUTIONS INVESTMENT RECORD

    UNFORTUNATELY, MANY FEEL THAT OUR LARGEST FINANCIAL INSTITUTIONS HAVE FAILED TO CARRY OUT THEIR OBLIGATIONS TO MEET THE CREDIT NEEDS OF EL PASO AND TO INVEST IN THE COMMUNITY'S GROWTH. WHEN ASKED IN SURVEYS ABOUT THEIR NEEDS, SMALL BUSINESSES CITE ACCESS TO CAPITAL AS THEIR NUMBER ONE NEED. YET, THERE IS MUCH ANECDOTAL EVIDENCE THAT SMALL BUSINESSES HAVE BEEN UNABLE TO OBTAIN LOANS FROM OUR LARGEST BANKS. FOR EXAMPLE, OUR NEWSPAPER REPORTED THAT OUR CONGRESSMAN'S BROTHER HAD TO OBTAIN A SMALL BUSINESS LOAN FROM A NEW MEXICO BANK BECAUSE HE COULDN'T GET ONE FROM EL PASO BANKS. RECENT STUDIES AND DATA SUPPORT SUCH EVIDENCE. INFORMATION FURNISHED BY CHASE BANK SHOWS THAT EL PASO RANKED AT THE BOTTOM OF THE MAJOR TEXAS METROPOLITAN AREAS IN 1997 SMALL BUSINESS LENDING IN TEXAS.

    [EXHIBIT "A"'] A YEAR 2000 SURVEY OF SIX TEXAS MSA's BY THE CITY OF EL PASO REVEALS THAT EL PASO CONSISTENTLY RANKS AT THE BOTTOM IN VARIOUS CATEGORIES OF SMALL BUSINESS LOANS ON A PER CAPITA BASIS; THAT IS, LOANS LESS THAN $1OO K; LOANS BETWEEN $100 AND $250 K; LOANS OVER $250 K; AND, LOANS TO BUSINESSES WITH GROSS ANNUAL REVENUES LESS THAN 1 $MILLION. IN TERMS OF TOTAL LOANS TO SMALL BUSINESSES, EL PASO BANKS LENT APPROMIMATELY $282,000 ON A PER CAPITA BASIS COMPARED TO LAREDO WHOSE BANKS LENT APPROXIMATELY $635,000 PER CAPITA.

    [EXHIBIT "B"] ANOTHER INDICATOR OF FINANCIAL INSTITUTIONS' INVESTMENT IN A COMMUNITY IS THE LOAN TO DEPOSIT RATIO. PUT IN SIMPLE TERMS, IF THE LOANS TO DEPOSITS ARE LESS THAN 100%, THE COMMUNITY SUFFERS A LOSS TO ITS ECONOMY. IN A 1999 STUDY OF OUR FOUR LARGES BANKS, THE COMMUNITY SCHOLARS, A STUDENT PUBLIC POLICY RESEARCH ORGANIZATION, CONCLUDED THAT THE BANKS "EXPORTED A TOTAL OF ALMOST $1 BILLION IN LOCAL DEPOSITS EACH YEAR FROM 1992 THROUGH 1998 RATHER THAN MAKING THE FUNDS AVAILABLE TO AREA BORROWERS".

    [EXHIBIT "C"] THE BANKS' LOAN TO DEPOSIT RATIOS RANGED FROM APPROXIMATELY 47% TO 75%. THE CITY OF EL PASO'S 2000 SURVEY OF THE FOUR TOP MARKET LEADERS SHOWS EL PASO BANKS ON A STATEWIDE BASIS AVERAGE A 64.9% LOAN TO DEPOSIT RATIO COMPARED TO LAREDO'S 93.9%.

    [EXHIBIT "D"] THESE LOAN TO DEPOSIT RATIOS, EVEN LOWER THAN THE STATE'S 66% AVERAGE, ARE A REFLECTION OF THE LOAN MARKET BEING CONTROLLED BY MULTINATIONAL BANKS WITH NO LOCAL CONTROL, NO RELIANCE ON SMALL BUSINESS LENDING, AND NO QUALMS ABOUT INVESTING OUR DEPOSITS OUTSIDE EL PASO. IN SHORT, IT APPEARS THE LARGEST BANKS IN EL PASO ARE NOT INVESTING IN THE COMMUNITY AND IRONICALLY, AT LEAST IN MY VIEW, THEY ARE IMPEDING ITS ECONOMIC GROWTH.

    OUR LOCAL RESPONSE

    TO ADDRESS OUR CONCERNS ABOUT LACK OF INVESTMENT AND ACCESS TO CAPITAL WE HAVE TAKEN SEVERAL STEPS. THE EL PASO FAIR LENDING COALITION BEGAN AN ONGOING CAMPAIGN TO ENCOURAGE INVESTMENT IN THE COMMUNITY BY URGING DEPOSITS WITH INSTITUTIONS (CREDIT UNIONS, LOCALLY OR REGIONALLY OWNED BANKS, ETC.) THAT ARE AGGRESSIVELY MEETING THE LENDING NEEDS OF THE COMMUNITY. THE SIMPLE IDEA BEING THAT WE WILL INVEST IN THOSE THAT INVEST IN US.

    PERSONNALLY, I HAVE WITHDRAWN MY CAMPAIGN ACCOUNT FROM A MULTINATIONAL BANK AND PLACED IT WITH MY LOCAL, FRIENDLY CREDIT UNION WHERE I MAINTAIN MY CHECKING AND SAVINGS ACCOUNT. BY DEPOSITING OUR MONEY WITH RESPONSIVE FINANCIAL INSTITUTIONS, WE WILL HOPEFULLY PROMOTE COMPETITION SUCH AS EXISTS IN BORDER COMMUNITIES LIKE THE RIO GRANDE VALLEY AND LAREDO, WHERE THE BANKS ARE LENDING TO SMALL BUSINESSES, RESULTING IN HIGHER BORDER EMPLOYMENT THAN IN EL PASO, AS SHOWN IN [EXHIBIT "E"].

    OUR LOCAL GOVERNMENTS HAVE ALSO BEGUN TO MAKE OUR LARGE BANKS MORE ACCOUNTABLE BY REQUIRING THAT CERTAIN COMMUNITY INVESTMENT INFORMATION BE PROVIDED AT THE TIME THE BANKS APPLY TO BECOME DEPOSITORIES OF OUR PUBLIC FUNDS. QUESTIONS ABOUT SPECIAL LOAN PROGRAMS, COMMUNITY REINVESTMENT INITIATIVES, SMALL BUSINESS LOANS AND LOAN TO DEPOSIT RATIOS ARE NOW PART OF THE BANK DEPOSITORY APPLICATIONS REQUIRED BY EL PASO COUNTY AND THE EL PASO COUNTY HOSPITAL DISTRICT.

    [EXHIBIT "F"] WHILE BANKS INITIALLY COMPLAINED ABOUT THE NEW INFORMATION REQUIREMENTS, CHASE BANK , THE INSTITUTION AWARDED THE DEPOSITORY CONTRACTS , FURNISHED THE INFORMATION REQUESTED.

    [EXHIBIT "G"] AGAIN, WE SHOULD ASK OURSELVES, WHY SHOULD WE PLACE OUR PUBLIC FUNDS WITH INSTITUTIONS THAT DON'T INVEST IN OUR ECONOMIC WELL BEING?

    FINALLY, OTHER INITIATIVES HAVE BEEN PROPOSED TO ADDRESS EL PASO'S SEVERE CREDIT CRUNCH, INCLUDING: THE CREATION AND FUNDING OF COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS (CDFI's) TO PROVIDE TECHNICAL ASSISTANCE AND ACCESS TO CREDICREDIT TO SMALL BUSINESSES; SETTING TARGETS FOR SMALL BUSINESS LENDING GOALS; CREATING INCENTIVES TO ATTRACT NICHE BANKS TO SERVE SMALL BUSINESS; AND, CREATING FOCUSED OUTREACH EFFORTS TO ASSIST SMALL BUSINESS IN MEETING THEIR CREDIT NEEDS.

    CONCLUSION
    IN CONCLUSION, FINANCIAL INSTITUTIONS MUST BE HELD ACCOUNTABLE BY THE COMMUNITIES IN WHICH THEY DO BUSINESS. EL PASO AND SIMILAR COMMUNITIES THROUGHOUT TEXAS EXPERIENCING LACK OF ACCESS TO CAPITAL HAVE A RIGHT TO INSIST THAT BANKS HOLDING PUBLIC FUNDS RETAIN AND INVEST THOSE DEPOSITS IN THE COMMUNITY; THAT LOAN TO DEPOSIT RATIOS BE INCREASED; AND THAT SMALL BUSINESSES HAVE THE OPPORTUNITY TO CONTRIBUTE TO THE COMMUNITY'S ECONOMIC GROWTH.

    THANK YOU.