Good morning. I would like to welcome you to the fifth annual Business
Bankers Recognition Breakfast sponsored by the Minneapolis Community Development
Agency (MCDA). We are pleased to host this year's event, and I am grateful
for the opportunity to join you this morning to discuss community development
This event is being held here at the Reserve Bank to highlight the accomplishments
of commercial lenders who have partnered with the MCDA through its business
finance programs. The commercial lending community plays a vital role
in economic and community development in the city of Minneapolis. We at
the Reserve Bank consider it a key component of our mission to support
and encourage public/private partnerships such as those being recognized
Often at events like this, I am asked to provide comments on the state
of the economy or monetary policy, so it is refreshing to be talking to
you about a somewhat different topic. I say somewhat different,
because the Federal Reserve Bank's monetary policy and opportunities for
community development are more closely related than they might at first
appear. We in the Fed are well known for our strategies to promote a stable,
low-inflation economic environment. However, low inflation is only a means
to an end; the ultimate goal of Federal Reserve policy is to promote maximum
sustainable economic growth and rising living standards over time.
I am convinced that a low-inflation environment provides the best climate
for improving living standards, but it is evident that certain areas have
been left behind during this time of prolonged, and rather remarkable,
economic expansion. Pockets and neighborhoods within our core cities have
not shared in the benefits of economic growth and therefore may well require
extra attention to ensure that they too benefit as the overall economy
progresses. One of the important limitations in these areas is access
to capital—access that is critical to starting, growing, and maintaining
Partnerships between MCDA and the lending community
I'd like to turn now to the relationship between the lending community
and the MCDA.
Bank loans are the primary source of debt capital for small businesses.
Banks traditionally have made money by making loans to businesses and
consumers, so they have both the resources and the expertise to finance
business creation and expansion. Partnering with bankers to accomplish
community and economic development projects provides a source of capital
as well as additional expertise and technical assistance to the business
borrower. A local banker can be a valuable resource to the borrower and
a knowledgeable partner to local government in accomplishing community
These partnerships between local bankers and the MCDA are resulting
in substantial community development activities in the city of Minneapolis.
During the past 10 years, more than 1,000 companies have used MCDA business
finance programs to access nearly $100 million in financing for a broad
range of development projects. Even more notable is MCDA's success in
leveraging private and other funding sources. In fact, these sources have
contributed approximately 90% of the total dollars going into these projects.
Most MCDA loans involve partnerships with local banks that make this
access to capital possible. MCDA projects often involve partnerships with
community-based nonprofit organizations as well. These public/private
collaborations help businesses gain access to the capital they need while
providing profitable returns to bankers and benefits to the Minneapolis
The community development role of the Federal Reserve Bank
So, why is the Federal Reserve involved in community development?
Our commitment to community development stems from the Fed's role as
a bank regulator responsible for monitoring the community reinvestment
performance of financial institutions. Having access to information on
community reinvestment and market opportunities as well as unmet needs
and challenges only enhances our ability to identify ways to fill those
The Federal Reserve is in a unique position to bring together banks,
community organizations, local government, and developers. Our role is
to provide information and technical assistance to financial institutions,
community-based organizations, government entities, and a wide variety
of other organizations regarding the Community Reinvestment Act, innovative
models of community and economic development, and issues related to fair
and equal access to credit. The Fed also serves as a resource regarding
traditionally under-served markets and the tools and techniques available
to help meet the financial needs of those markets. In these ways, we help
to improve market practices.
In addition to providing resource information, technical assistance,
and regulatory guidance, our objective is to foster collaboration and
encourage public/private partnerships that target investment in low- and
moderate-income communities throughout the Ninth Federal Reserve District.
MCDA and the lenders being honored here today serve as a testimonial to
the success that can be achieved through public/private collaboration.
I encourage each of you to continue to expand your involvement in community
development projects in the coming years. Historically, community development
lending has relied heavily on public subsidies and funding. Federal, state,
and local dollars have made the "undoable" deals "doable", which has resulted
in millions of dollars of community development projects in low- and moderate-income
neighborhoods that otherwise would likely not have come to fruition. However,
public subsidies are subject to changing political and budgetary forces.
The trend in recent years reflects a decreasing amount of public funding
available for community development projects. As a result, sustainable
community development will become increasingly dependent upon alternative
sources of funding. The challenge that lies ahead is to find innovative
ways to fund safe and sound community development projects with less dependence
on public money, and to forge ongoing partnerships between public, private,
and nonprofit organizations to ensure the success of these important efforts.