NR 97-78
August 5, 1997

Remarks of Eugene A. Ludwig
Comptroller of the Currency
before the National Urban League
Washington, D.C.
August 5, 1997

I'd like to thank Hugh Price for inviting me to take part in
this impressive gathering.  In recent months, Hugh and I have
developed a friendship and a partnership that mean much to me.  
As we have worked together to advance our common goals, I have
come to know and admire the qualities of steadiness and vision
that Hugh possesses in such rich abundance.  I look forward to
continued cooperation -- and continued progress -- in service to
the causes we hold so dear.   

It is a particular pleasure to join Secretary Cuomo this
afternoon in paying tribute to the distinguished record of
accomplishment of the National Urban League since its founding
in 1910.  Over the nearly nine decades since, the Urban League
has waged a sometimes lonely struggle at the grass roots to
achieve social and economic justice for African Americans and
all Americans -- recognizing, as Martin Luther King Jr. put it,
"that injustice anywhere is a threat to justice everywhere."   I
applaud your efforts to build a better America. 
  
 I thought I would begin my remarks with a few words about the
agency I head.  Most bankers are conversant with the work of the
Office of the Comptroller of the Currency, but those who are not
members of the financial fraternity will recognize the OCC -- if
they recognize it at all -- as just another acronym entry in the
back pages of the federal directory. 

In this case, our full name does not even describe the agency's
business.  While the OCC 
was originally the custodian of the nation's money supply, today
we no longer have currency to control -- nor to dispense.  

But the monetary function, while certainly important, was in a
way peripheral to the mission President Lincoln assigned the
office when he established it in 1863 -- a mission that is still
central to the OCC today.  While the rebellious Confederacy
pinned its economic hopes on King Cotton -- surely an important
commodity -- the future Lincoln foresaw rested on King Capital,
the commodity that commanded all others.  It followed that if
the federal government was to regulate any sector of the private
economy -- and at the time, none of it was regulated -- the
government should regulate the banking system, which had the
power to make or break all business enterprises.  That was the
job Lincoln assigned to the OCC:  the job of safeguarding the
public interest in the allocation of private credit and other
bank services so vital to economic opportunity.  

The concept of opportunity permeated Lincoln's thought and
animated his hatred for slavery, which he defined as the denial
of opportunity.  When he issued his famous warning about the
dangers of a House Divided, he was speaking not only in a
literal sense, about a nation half-slave and half-free, but also
about one that pitted haves against have-nots. 
 
If Lincoln had coined it himself, he could not have improved on
the motto adopted by the National Urban League in 1921:  "Not
Alms, But Opportunity."   

Obviously, in the 132 years that have passed since Lincoln's
death, the public interest in bank regulation has been defined
and redefined.  At the start of my tenure as Comptroller of the
Currency, the OCC rededicated itself to the historic principles
upon which the agency was founded:  achieving a safe and sound
banking system built on the full and fair access to financial
services so important to the well being of our nation's
communities. 

I will be the first to admit that when I became Comptroller in
1993, the performance of the banking system fell conspicuously
short of that ideal.  The industry was not nearly as sound and
stable as it is today.  And too many of our urban neighborhoods
and rural communities were starved of the investment they needed
for growth and renewal. 

As I traveled from inner city to inner city, talking to people,
I heard the same story again and again.  Whether in Los Angeles,
New York, Chicago, or the District of Columbia, it was the same
story of entrepreneurial initiative inhibited and hope
diminished for lack of bank services and bank credit.  In
Detroit, a prominent banker told me that in 1990, his city saw
exactly two housing starts.  Two housing starts.  There were
whole neighborhoods without so much as a single bank to be found
-- and, therefore, no safe place for people to save, to obtain
professional financial advice, or to set up a checking account
with which to pay their bills.   
 
The irony was that laws already on the books -- laws the Urban
League championed decades ago --  were supposed to prevent or
correct this unjust state of affairs.  But violations of the
Equal Credit Opportunity Act, which bars discrimination in
lending, were rarely prosecuted by bank regulators.   The
Community Reinvestment Act, which requires financial
institutions to assess and address their communities' credit
needs, had largely lapsed into an ineffectual paperwork
exercise. 

Reviving and enforcing those statutes was among my first
priorities upon becoming Comptroller.  My oath of office demands
no less.  Accordingly, the OCC adopted new ways to examine banks
for compliance with the fair lending laws and -- essentially for
the first time -- started referring cases to the Justice
Department for prosecution.  In fact, over the past four years,
we have conducted more than 3,000 fair lending examinations, and
referred 24 cases of fair lending violations for prosecution.  

Discrimination still has by no means been banished from the
national banking system.  I was disappointed, as I know you
were, to learn about the disparity in denial rates for home
mortgage applications contained in the statistics released
yesterday.  Until we have completed our analysis of these data,
we cannot say for certain why this disparity continues to exist. 
Some economists suggest that these numbers may mean that lenders
are willing to consider applications from more individuals who
would never gotten to the application stage just a few years
ago.  Other economists suggest that minority applicants may be
more likely to lack a positive credit history or, perhaps, any
credit history.  That last hypothesis especially troubles me,
for it says that the discrimination of the past continues to
perpetuate itself.  But whatever the explanation, I can tell you
this: we will not rest in our efforts to identify and eradicate
lending discrimination wherever it exists.  

Let there be no doubt about it: we have zero tolerance for
lending discrimination.  And, while recent data does show
impressive gains in lending to Hispanic Americans and native
Americans over the past year, and while lending to African
Americans is up 54 percent in the last three years, I am still
quite troubled that African American lending rose more slowly in
1996.  Accordingly, I have directed my staff to begin an
immediate in-depth effort to get to the bottom of the weaknesses
in the last year's numbers.  I expect a report on my desk within
the next 60 days, so that we can immediately take whatever
corrective action may be necessary.  I will also be asking all
the relevant agencies and departments to join us in this effort.

Obviously, we have a long way to go, both in fair lending
enforcement and in community reinvestment.  But we are making
real progress in both areas.  In 1993, President Clinton ordered
the banking regulators to rewrite the Community Reinvestment Act
regulations to make them more effective and more results-oriented.  So we did. 

The results of our emphasis on CRA have been encouraging.  In
the past three years, we have obtained new commitments for low
and moderate income loans totaling $215 billion.  Since 1993,
home mortgage loans to low and moderate income census tracts
have risen by 33 percent.  Mortgage loans to minorities are up
almost 38 percent, with African Americans and Hispanics
accounting for most of that gain.  In the past four years, banks
have invested four times as much in community development
projects as they did in the whole previous 30 years.  During
1996 alone, national banks and their community partners invested
almost $1.5 billion in community development corporations and
community development projects -- funds used to produce
affordable housing, finance small business, and develop retail
and commercial revitalization projects.  Our anti-redlining
efforts have clearly  begun to pay off.  But more can and must
be done. 

I must tell you that, at first, these initiatives won us few
friends among the national banks the OCC supervises.  I was
called a closet social engineer -- and worse.  But these critics
missed the point.  It was our belief then that greater lending
to low and moderate income borrowers and minority Americans was
not only the right thing to do, it was fundamentally good
business for the bankers.  Nothing that has happened since then
has caused us to change our minds.  In fact, everything we have
learned in the past four years reinforces the conviction that
lending to low and moderate income and other underserved
Americans is consistent with a safe and sound banking system. 
In fact, it's indispensable.  We have found time and again that
loans to so-called marginal borrowers are no less safe --
indeed, sometimes safer -- than loans to more traditional
borrowers.  We have found, as have the bankers themselves, that
profitable, long term banking relationships often begin in
modest ways: with a savings account, a checking account, or a
credit card. 

When I have returned to cities like Chicago and Los Angeles over
the past four years, the cold numbers have taken on a human
face.  I have spoken to people who never thought the day would
come when they would own their own home.  But the day did come. 
When I recently visited Detroit,  I met people who had never
thought they'd see real reinvestment in their community.  But
the day did come.  In 1995, a consortium of Detroit banks
pledged more than a billion dollars in new investment over ten
years.  In the first year, they made loans totaling $285
million, or almost three times what had been pledged.  That's
$285 million in loans for business, loans for homeowners, and
loans for development.  That's hope for thousands of our fellow
citizens. 
  
We can take pride in these results even as we build upon them. 
For  I am convinced that there are an almost limitless number of
rich possibilities for banks and other financial institutions to
make profitable contributions to the rebuilding of America --
both under the law and beyond it.  

Today, few doubt our commitment to CRA and fair lending -- nor
should they.  CRA and the fair lending laws will remain
important components of our strategy to bring more opportunity
to our neediest and worthiest citizens.   Indeed, we can
significantly expand CRA's positive impact by considering ways
to extend its reach to the growing nonbank sector of the
financial services industry -- to the insurance and securities
firms, the pension and investment houses, the mortgage and
finance companies -- that are custodians for the bulk of the
household assets in this country today.  At the end of 1996, for
the first time, the dollar volume of mutual funds exceeded the
dollar volume of bank deposits.  In these circumstances, I think
you will agree that it makes sense to start thinking about how
these financial powerhouses can shoulder some of the public
responsibilities that banks today must assume. 

But I am thinking less today about obligation than about
opportunity.  It is precisely because of our positive
experiences under CRA -- experiences that have proved that such
lending makes sense purely as a business proposition -- that we
are now poised to move beyond enforcing a compliance obligation,
to work in concert with the Urban League and other organizations
committed to economic opportunity, to take advantage of exciting
possibilities for partnerships between banks and traditionally
underserved Americans -- partnerships with the power to
transform lives, whole communities, and our urban centers. 

One of the most promising new frontiers for partnership is in
the field of small business lending and support of
entrepreneurial enterprises.  Nothing is more crucial to our
nation's economic future.  Small business generates more than
half of all jobs in America and more than half of the nation's
gross domestic product.   No form of economic activity has
greater potential for revitalizing our cities -- for turning
mean streets into main streets -- than tapping the
entrepreneurial spirit of the people who live in them.  And
nothing, therefore, is a higher priority for me personally and
for the OCC than finding ways to stimulate bank lending to small
business, especially minority small business.  

We know the need is there.  All across the country, I've met and
spoken to small business people who tell me that they cannot get
the credit they need for start-up and expansion or can only get
it on prohibitive terms.  Studies show that minority
entrepreneurs have a particularly tough time of it.  We know
that while African Americans make up about 12 percent of the
general population, they own less than 4 percent of U.S.
businesses.  Something is clearly amiss. 

Soon we will have the hard numbers we need to begin to quantify
the problem -- and measure our progress.  For the first time
this fall, as the result of our CRA reforms, we will be getting
information on small business loan originations from every large
bank and thrift.  This data, which will be made available to the
public, will tell us where the small business loans are going --
though not necessarily to whom.  When this policy change was
being discussed, I argued that it was important to have numbers
on the race and gender of small business borrowers to help us
identify possible patterns of discrimination.  But other
financial regulatory agencies said no.       

One day we will have all the information we need.  But it is not
the OCC's intention to sit on our hands until it arrives.  As a
society, we have already waited long enough.  Good intentions
count -- but not as much as good results. 

That's why the OCC launched a program earlier this summer called
"Banking on Minority Business."  This program is a series of
forums all across the country that bring together bankers,
representatives of the small business community, and leaders of
minority business and community organizations, including local
chapters of the Urban League.  So far, I have taken part in
forums in Cleveland, San Francisco, and here in Washington. 
Later this year, I will be participating in similar meetings in
St. Louis, Boston, Houston, and New Orleans.  
Through this cross-country dialogue, we have already learned
much about the specific obstacles that keep minority small
business borrowers and lenders apart.  And through this
dialogue, we are coming up with ideas for getting around those
obstacles.  Sometimes the solution is no more than a matter of
educating borrowers about a program they may not have known
about.  Sometimes, the answer is more complex -- for example,
how to restructure a loan in an unconventional way to meet some
special need.  In our Washington, D.C. forum this past June,
Hugh Price pointed out the importance of applying our experience
from the mortgage lending arena to small business lending.  He
emphasized the importance of micro loans to stimulate small
business start-up.  

New ideas for new partnerships -- that's what our outreach
efforts are all about. 
     
When the outreach process has identified regulatory obstacles in
the way, we have moved aggressively to correct them.   Let me
pledge to you here and now that the OCC will continue to do
everything in its power to eliminate unnecessary regulatory
barriers to the consummation of productive partnerships between
banks and the small business community.  With small business
lending as with home mortgage lending, we will not rest until we
begin to see the results that are so long overdue.  
     
Many years ago, in 1915, Ruth Standish Baldwin, wife of the one
of the founders of the  Urban League, closed a letter to a
friend with words that for years appeared on each sheet of the
organization's stationery.  "Let us work," she wrote, "not as
colored people nor as white people for the narrow benefit of any
group alone, but together, as American citizens, for the common
good of our common city, our common country." 
     
I can think of no finer cause to inspire our dedication today.  
     
Let us work to form more partnerships between businesses and
Urban League chapters.
 
Let us work to form more partnerships with banks and other
financial services industries.
 
Let us work to empower entrepreneurial businessmen and women.  

Together we can and will make progress for the common good of
our common country. 
     

                              # # #

The OCC charters, regulates and supervises approximately 2,800 national banks and 66 federal branches and
agencies of foreign banks in the U.S., accounting for more than half the nation's banking assets.  Its mission is to
ensure a safe, sound and competitive national banking system that supports the citizens, communities and
economy of the United States.