Accounting for Community

Every Wednesday, Barbara Arroyo has a meeting about the future of New York City. It’s part of the routine at Ponce Bank, the Bronx-based community bank where she works as a commercial loan officer. Sitting at the table with Arroyo at this meeting is the bank’s credit committee, consisting of the bank’s CEO, its chief financial officer and a few of the bank’s board members.

Arroyo begins by telling the group about the lives, hopes, and dreams of her clients: a small but growing slice of the restauranteurs and barbershop, beauty salon, and other small business owners who are the lifeblood of every thriving commercial corridor in the city. They review the finances and business plans for each business as well as Arroyo’s findings about the owner’s character and the importance of their business to the neighborhood. One of the credit committee members may ask Arroyo to bring in a client for a face-to-face meeting later. And after they’ve gone through Arroyo’s portfolio, it’s the next loan officer’s turn to run through the same process with their clients.

For better and sometimes for worse, through meetings like these, community banks like Ponce make loans that shape the New York where most of us live and many of us work, shop or play. JP Morgan Chase, Bank of America, Citibank, and Wells Fargo, the four largest banks in the country, appear ubiquitous today, with branches popping up like weeds on so many corners of New York. But when it comes to their lending patterns, the biggest banks concentrate most of their attention on financing the biggest buildings in Midtown or Lower Manhattan, or more recently Downtown Brooklyn and Western Queens.

Meanwhile, community banks have been a prominent source of financing for the construction, acquisition, or maintenance of most buildings throughout New York’s history. From Lower East Side tenements to Upper West Side co-ops to row houses in Ridgewood, if a building owner needs to replace a boiler, reinforce a century-old staircase, rehaul an elevator, fix a roof, install a solar array, or retrofit a building to meet the newest energy reduction standards, they will require some kind of loan, and more often than not it’s a community bank that makes it.

For many decades, until not that long ago, community banks were a ubiquitous presence in New York and beyond. According to the Federal Deposit Insurance Corporation, in 1985 — the year I was born — there were more than 15,000 community banks across the country. That’s an average of five community banks per county.

We walk among echoes of that era: the majestic bank buildings that remain architectural fixtures after their uses have changed. Many are vacant, like the former Harlem Savings Bank, with its granite façade on 125th Street near Lexington Avenue. The bank changed its name in 1983 to Apple Bank for Savings, which still has 53 branches across the five boroughs. But the building has passed hands several times since Apple closed this branch in 2018, and has for some time been slated for demolition to make way for a new seven-story retail and office building with “community space” by developer MADD Equities.

Every now and then there are architectural tours of the former headquarters of Dime Savings Bank of Brooklyn, a domed landmark on Dekalb Avenue. That bank got bought up by Chase, which moved the branch elsewhere, and the building is now being converted into a retail space connected to the supertall next door. A Canadian bank financed the new building — Brooklyn’s tallest when it topped out in 2021 — featuring 150 condos for sale and some 400 rentals. Market-rate rents start above $4,000 a month for a studio (“affordable” units begin at $2,630).

Today there are only around 4,200 community banks left across the country — a reduction of 73 percent since 1985. In terms of market share, FDIC-defined community banks collectively represented around 37 percent of bank assets in 1985, while today they represent just over 11 percent. Meanwhile, the four biggest banks alone now hold nearly half of all $23 trillion in bank assets in the country. In other words, in my own lifetime, the banking system has transformed from one where banks were often headquartered in the same neighborhoods whose development they helped finance to one dominated by big banks that don’t see neighborhoods so much as they see assets to reap for higher profits.

Going back as far as 1850, the five boroughs have been home to roughly 250 community banks, though there were never that many active at any one time. Some merged, some failed, others emerged in their place. Some grew beyond the FDIC’s definition of community bank, which generally includes banks with assets below a threshold linked to inflation (currently $1.65 billion in assets), or banks above that threshold that only have branches in up to two metropolitan areas or three states.

Currently there are 30 institutions headquartered in New York that meet the FDIC’s community bank definition: 18 in Manhattan, eight in Queens, two in Staten Island, and two in the Bronx. There are none in Brooklyn — its last community bank was Dime Community Savings Bank (unaffiliated with Dime Savings Bank of Brooklyn). After a merger with another community bank in Nassau County, it moved its headquarters out to Long Island in 2021. Expanding to include Long Island and Westchester, Rockland and Putnam counties yields about a dozen more community banks that still have strong ties to the five boroughs.

It’s not just that community banks do different things than large banks — making a large number of smaller loans to replace a boiler here or fix a roof over there for buildings that don’t individually attract the attention of giant global banks. It’s also about whom they do it with. If all that mattered was upping the amount of money flowing into historically disinvested communities to build more housing or rehab poorly maintained housing, big banks could certainly make that happen much more efficiently. A few giant banks could make huge loans to a few big developers for the wholesale acquisition and rehab of entire neighborhoods. That’s a lot of what’s happening today, and the results have not been great for working class communities of color. Brooklyn’s Barclays Center is named after one of the global banks that helped arrange a $500 million tax-exempt bond sale as part of the billion-dollar construction of the arena, the centerpiece of a larger project that has contributed to mass displacement of long-time residential and commercial tenants in the area.

In 1903, the New York Times ran a story headlined, “Many Big Tenement Houses Built with Little Capital,” contrasting the big investment banks’ financing of Midtown Manhattan with the immigrant sweatshop workers who were building most of the tenement buildings of the Lower East Side by combining their meager savings with loans from community banks established by other immigrants who usually came from the same countries.

With its twelve stories casting a shadow over today’s Dimes Square, the S. Jarmulowsky Bank Building still bears the name of the Russian Jewish immigrant banker who financed the construction of many Lower East Side tenement buildings owned by other Jewish immigrants from Russia, Germany, or Poland. For his book, The Decorated Tenement, architectural historian Zachary Violette researched 3,000 such tenement buildings in New York and Boston, finding the same story of immigrant workers financed by immigrant bankers to build tenement housing for other immigrants, over and over again. These were homes that New Yorkers built for other New Yorkers, that allowed their tenants to build a new life in a new country. When those migrants didn’t want those homes any more, there were new generations from other places who made them their own, often as today’s co-ops on the Lower East Side or Uptown Manhattan and the Bronx.

In many ways, Ponce Bank is simply carrying on that tradition for a more recent set of migrants. By themselves, community banks can’t stop global capitalism from financing megaprojects that may or may not actually make the city a better place. But community banks continue quietly financing development that serves New Yorkers across every class, race and immigrant status. Amidst the unbridled shareholder-first capitalism mining New York for pure financial gain and cementing the city into a homogenized playground for the rich and famous, community banks still make sure New York looks and feels like New York — a multi-race, multi-class, multi-cultural, multi-everything city.

I first met Barbara Arroyo last year, many years into my investigation of solutions to advance racial justice in cities. Arroyo grew up in the Edenwald public housing development in the northeast Bronx, a child of migrants from Puerto Rico who arrived in New York when they were just children themselves. Her father had a GED, her mother never got around to it. They worked two or three jobs each, but without any assets they could use as collateral, they faced barriers accessing credit to improve their situation. During her high school years, Arroyo got a summer internship at a big bank. She went on to Georgetown University, with the goal of going into banking to help others in communities like the one where she grew up.

After graduating from Georgetown, Arroyo thought she was on her way, landing a job at a big bank in New York. She found great mentors and managers who taught her a lot about the banking business, which is still the kind of business where most of the learning happens on the job and not in a classroom. But, Arroyo told me, she gradually became frustrated with how things worked at the big banks where she started out her career. She was expected to produce a certain number of small business loan applications submitted from clients every month, knowing that most of them, maybe 80 percent of them, would be denied for one reason or another. Not enough collateral here, credit score too low there. She felt like an order-taker, she told me. It wasn’t what she envisioned for herself.

Arroyo had heard of Ponce Bank when she was growing up, but she’d never imagined working there. It seemed too small for her. It seemed too small to her mentors and former colleagues when she started telling them she was interested in the job. But the bank was looking to grow, and she was exactly what they were looking for — someone from the Bronx, who deeply understands the local market, with prior experience in commercial lending.

Ponce Bank was founded in 1960 by a group of Puerto Rican activists and business leaders in the Bronx who were fed up with the redlining they were facing from other banks. Though its namesake is a symbol of colonialism, the Spanish Conquistador Ponce De Leon, Ponce shares the name with what was Puerto Rico’s largest city when the US occupation arrived in 1898. The city of Ponce was the island’s economic heart, and later became a hub of resistance to US imperial aggression. Ponce Bank’s first main branch was at 951 Southern Boulevard, and it still maintains a branch across the street from that location today, along with 13 branches across four of the five boroughs, and one just over the river in Union City, New Jersey.

Ponce Bank was originally chartered as a mutual bank, an older form of bank ownership that was much more popular in the late 19th and early 20th centuries. Mutuals are somewhat like credit unions in that they don’t have traditional shareholders. Mutual bank depositors choose their bank’s board of directors, which is responsible for making sure the bank remains financially sound while also meeting its mission of serving the community.

The demands on a mutual bank board can be intense, especially at Ponce Bank, whose board meets every Thursday for at least two hours. But that’s what’s required when a bank depends on its personal connections with borrowers and understanding of their communities to make lending decisions — not simply credit scores, collateral, and algorithms that spit out split-second decisions.

Ponce hired Arroyo in 2017 to help grow relationships with small businesses. One day in October 2021 she met Julio Sanchez, who owned a small grocery store (or a large bodega, depending on who you ask) on Westchester Avenue, about a mile down the street from the bank’s headquarters. Another client had referred Sanchez to Arroyo.

Sanchez was interested in acquiring the 1925 mid-block single-story, two-unit commercial building his business was currently renting, with its fresh fruit and vegetable displays sprawling out onto the sidewalk in the shadow of the St. Lawrence Avenue stop on the 6 train.

Since Sanchez took over his brother-in-law’s bodega in 2004, he’s seen it happen more than a handful of times nearby: a new landlord takes over a building and jacks up the rent or just kicks out a longstanding commercial tenant. For years he’d joke to his own landlord, a Puerto Rican gentleman named Enrique Caro, that he wanted to buy the building himself eventually.

It was actually Ponce Bank that gave Caro a $20,000 loan to buy the building back in 1968. Caro ran the bodega himself till he retired in 1994. He sold the business to Sanchez’s brother-in-law, but kept the building to rent for some retirement income. Caro passed away in January 2021, but before doing so, he told his family that he had promised to sell the building to Sanchez. Later that year, the Caro family approached Sanchez with an asking price for the building — around $1.5 million.

Just as Ponce was there for Caro, it is still here today for another generation of owners of bodegas, barbershops, shoe stores, bookshops, bars, restaurants, and other beloved local businesses whose presence helps instill a deep sense of belonging for their neighbors. On July 21, 2022, Sanchez walked up Westchester Avenue to Ponce Bank’s headquarters to sign the closing documents for a $1.1 million mortgage from the bank. Caro’s daughter was there to represent her family. Sanchez is paying less now on his mortgage than he had been paying in rent.

That was just one of a dozen or so loans that Arroyo worked on last year. She’ll probably do another dozen or so loans this year, maybe even more — but not too much more, given the time it takes to build real relationships with clients.

None of this is meant to gloss over the well-documented shortcomings of banks. Even when there were more community banks around, if they weren’t minority banks they were almost certainly guilty of rampant redlining, not to mention financing the construction of exclusionary, car-oriented suburbs.

When New Deal-era policymakers made the decision to encourage millions of (exclusively white) families to acquire millions of suburban homes using 30-year fixed rate mortgages, they concocted a scheme that worked through community banks. First the community banks made the loans to developers to build the homes, then they made the 30-year mortgages to households to buy the homes — guaranteed by mortgage insurance from the Federal Housing Administration and the opportunity to sell those loans on the secondary market to Fannie Mae.

From 1934 to 1962, there were $120 billion in federally-subsidized home mortgages originated mostly by community banks, but more than 98 percent of those dollars went to white homebuyers to purchase homes in white-only suburban communities. Women couldn’t even open a bank account or get a bank loan without a husband or male relative’s signature until the passage of the Equal Credit Opportunity Act in 1974. Community banks have also turned up in bed with slumlords or predatory equity investors looking to flip entire neighborhoods from working-class communities into playgrounds for the rich.

Little banks have a collective track record of doing big things. But in this era of big bank dominance for consumers, it’s becoming easier by the day to forget that we’ve never done anything big in this country without little banks. Facing decades of disinvestment in Black and Brown communities, almost no production of new housing that’s affordable for most people, and the need to transition away from fossil fuels, it’s too easy to succumb to the seductive narrative that only big banks can solve big problems. But there is a long track record of community-based credit allocation that has helped us survive as a species.

It goes back at least 5,000 years. One of the most vivid and comprehensive descriptions of early human credit comes from anthropologist and activist David Graeber’s book, Debt: The First 5,000 Years. As Graeber details at length, the story that economists tell about the barter system that supposedly existed before the creation of money is a lie. The historical evidence shows that most people exchanged goods and services based on credit — offering up goods or services to members of their community on the belief that they would stick around and repay each other later.

Everybody basically just kept tabs for each other. The farmers had tabs with the butchers, the bakers, or the candlestick makers, and they in turn all had tabs with the farmers. People provided each other what they could when they could, and they would record it all using various physical markers of some kind. The earliest writings found so far are little clay tablets that ancient Mesopotamians used to record each other’s transactions. Come each harvest, the farmers would settle up with everyone they owed, and vice versa over the course of the year as the others made and distributed their goods.

Fast forward 5,000 years. A growing majority of people now live in cities and are generations removed from being farmers. Allocating credit is a profession and an industry — and yet so much access to credit still depends on social networks. That’s especially true when it comes to the kind of credit that is perhaps most important for building and maintaining cities: commercial real estate lending, including loans to build, acquire or maintain retail or office buildings and everything from industrial plants and warehouses to cultural spaces like theaters, galleries or museums.

The importance of social networks in commercial real estate lending is why community banks today still do more of it every year than the big four banks combined. Algorithms still haven’t figured out how to assess the fit of the surrounding neighborhood for a proposed project or a new business establishment, or how to identify the potential of a successful local business owner to branch out into owning real estate. Even after all the consolidation in the banking sector over the past several decades, in this particular lending category that is so vital to the look and feel of cities, community banks remain a major player across the country.

That said, community banks aren’t evenly distributed. Persistent discrimination and segregation along racial, ethnic, and linguistic lines remain significant factors determining which social networks have access to community banks. Out of the 4,200 remaining community banks, only 122 are minority banks like Ponce Bank. The picture is only slightly better when it comes to credit unions. But (with some exceptions) most credit unions lack the interest and expertise to do commercial real estate lending.

Whether it’s Ponce Bank or others like Carver Federal Savings Bank in Harlem or Abacus Federal Savings Bank in Chinatown — or even just the shells of former banks like the S. Jarmulowsky Bank Building — there are still many reminders that members of excluded communities have a long history of coming together to take some of the power of lending for themselves. And that long history isn’t just a bit part in the making of New York. Early community banks like Jarmulowsky’s bank were a big part of building the city we still live and work in today. If this city is still going to be here tomorrow — and not just in the form of a bunch of supertalls poking out above the ocean like some dystopian archipelago — community banks will be the banks that do the most to help the city we love to survive. If we need little banks to do even bigger things, we may need more of them around.