President Clinton - the Impassioned Community Activist - wants to set up a hundred new banks across the nation whose sole mission would be to pump millions of dollars' worth of loans into distressed inner cities and expiring rural areas.
These new "community development banks," as Clinton calls them, would be required to plow business loans and home mortgages - perhaps as much as 75 percent of their total loan business - back into the neighborhoods where they take deposits. In return, the banks would be eligible for federal assistance.In keeping with the help-yourself spirit of the times, Clinton would make the community banks raise $2 from private investors for each dollar invested by Washington.
It could be tough for the poorest towns and rural areas to raise that kind of money. Yet Clinton points to South Shore Bank of Chicago and Southern Development Bancorp., in his home state of Arkansas, as examples of how the program might work. Both of these operations have poured millions of dollars in business and neighborhood revitalization loans into low-income communities, all the while keeping defaults to a minimum - without federal help.
But not everyone is excited about community development banks. The American Banking Association says community development banks aren't necessary because existing banks already are required to meet inner-city lending needs, in keeping with the 1977 Community Reinvestment Act.
So what will Clinton - the Political Dealmaker - offer the banking lobby to gain support for his plan? Well, there is something the banks want: some slack from the Community Reinvestment Act, which they view as a paperwork nightmare that does not really provide incentives for local lending.
And now that he's in the White House, Clinton is making other moves to mollify bankers. His nominees to two key banking policy positions come from BankAmerica Corp. and NationsBank Corp., two of the largest bank holding companies in the country. Such companies are after one thing above all: freedom to set up branch offices across state lines.
Current federal law prohibits national banks from opening branch offices across state lines. A national holding company can acquire a bank, but only if state law expressly authorizes such an acquisition.
State powers rest, for the most part, in the ability to limit branching, and over the years states have used this power to extract agreements from banks for such things as - that's right - more community investment.
So now Clinton - the Once and Future Federalist - may find himself in an odd predicament: In order to give more money and power to local communities with one hand, he may have to take power away from the states with the other.