Goldman Sachs Acquisition-Needs CRA Plan First

Goldman Sachs Acquisition Should Not Go Through Without a CRA Plan

ANHD, together with our member groups and advocates nationwide, is submitting comments expressing specific concerns about Goldman Sachs’s application to acquire certain assets and liabilities of GE Capital Bank.  In mid-August, Goldman Sachs  announced plans  to acquire $16 billion in deposits and the deposit-taking platform from GE Capital Bank.  An acquisition like this offers an important opportunity for community groups to weigh in on the process and ensure that the transaction not only serves the interest of better meeting community credit needs, as required by the Community Reinvestment Act, but that it increases the bank’s commitment to reinvestment and community development.

Under the Community Reinvestment Act (CRA), banks have an obligation to ensure that their products are offered equitably to low- and moderate-income people and neighborhoods, and to invest in community development efforts to strengthen these communities.  Regulators have a responsibility to accurately assess this record through regular CRA exams and to take it into account when banks apply to acquire or merge with another bank or open/close branches.

In this case, we are dealing with two of the largest institutions in the world. Regardless of size, however, regulators are required to take into account any bank’s CRA record and public benefit plans when determining whether or not to approve such a transaction.  As we have noted over the years in our reports,  Goldman Sachs has in fact been a meaningful partner in many aspects of community development in New York City, especially in the area of economic development.  For example, the bank has been a long-time supporter of the Brooklyn Navy Yard, while also helping increase access to capital for small businesses through CDFI’s and loan funds.  Through LIHTC and other vehicles, the bank has also helped to finance the construction and rehabilitation of affordable housing.  However, we do have some concerns about their activity and larger concerns about the process itself that we feel must be addressed before the acquisition can be approved. An acquisition of any scale, and especially one among banks as large as these, should result in a significant increase of and improvement in community development activity.

While we respect Goldman Sachs’s local community development team and much of the work they do, we have serious concerns that must be addressed before the application can be approved.

1. Lack of a meaningful process to solicit public comments.  The acquisition was only recently listed on the Federal Reserve website (September 12, 2015 publication) and the comment period ended September 19th.  The state process was slightly longer – ending on Sept. 28, and we are pleased that the state recently extended the comment period an additional 30 days to late October.  With the Federal application itself so heavily redacted, there is little for the public to even comment on (click HERE for the application to New York State regulators). We are urging the regulators to extend the comment period by at least 60 days and hold public hearings to gather the most meaningful public input.

2. Lack of clarity on Goldman Sachs’s application.  Earlier this year, Goldman Sachs announced plans to offer consumer loans online and now the bank is acquiring this small business lender.  Yet, it is unclear from the application if this acquisition is part of their plan to offer consumer loans and, if so, what that means for Goldman Sachs’ CRA designation and plans to equitably meet the credit needs of the small businesses served by GE Capital and future customers. The application needs to clarify this point and regulators must commit to holding Goldman Sachs accountable for any consumer lending it does via a CRA plan that proactively takes that into account.

Related to small business lending, GE Capital Bank’s CRA Exam by the FDIC raises concerns. GE Capital Bank is designated as a retail bank, but as an online bank, it has just one branch in Utah and, thus, just one small CRA assessment area. The vast majority of its small business loans are made outside of its assessment area. On its last CRA exam, rather than designate assessment areas to evaluate these loans, the regulators ignored the bank’s record of small business lending entirely and only evaluated the bank’s community development loans, investments and services.

3. Lack of a public benefits plan, or a “CRA Plan.” The application goes into great detail on current and previous CRA activities. However, this is not a CRA plan, nor an outline of the public benefit as a result of the transaction. No merger or acquisition should be approved without a true public benefits plan, developed in partnership with community organizations throughout their assessment areas.ANHD urges the regulators to require a detailed CRA plan be created in partnership with community organizations. A plan must be made for its current assessment areas and any new assessment areas created as a result of any change in lending, while ensuring that the bank’s CRA commitment is maintained or expanded in its current assessment areas.

The plan must include (a) the full range of community development loans, investments and services and (b) goals and commitments to ensure that the new small business lending platform is responsibly meeting the credit needs of businesses in LMI tracts, truly small businesses overall and in LMI tracts, as well as minority and women-owned businesses (MWBE’s).

ANHD appreciates the leadership role that Goldman Sachs has played in many areas of community development, particularly around economic development and small businesses. At the same time,we are deeply disappointed that after barely two years of operation, the bank discontinued the Urban Investment Group’s community development grantmaking program that distributed meaningful grant dollars to community-based CDCs throughout New York City, both directly and as part of funders collaboratives.  This is a necessary component of any bank’s CRA commitment, especially one the size of Goldman Sachs’. We also believe the bank should be doing more community development deals directly with nonprofit CDCs that build and manage affordable housing, support small businesses and job creation, and engage in neighborhood-based community development.

Regulators have an obligation to take the time to solicit meaningful community input on Goldman Sachs’s CRA record and plans, and to ensure that this acquisition results in a clear, expanded benefit to the community. Goldman Sachs has the opportunity to be an industry leader here as well by committing to a strong CRA plan throughout its footprint that proactively ensures a strong community development commitment that works closely with the nonprofit sector. They can also proactively ensure that any changes to the bank’s business model results in a strong commitment to fair lending and increased access to capital and supports for its customers nationwide.