City Watchdog Says Chicago Has Failed To Verify If Its Banking Partners Are Lending Equitably

Chatham homes
Single-family homes are pictured along a residential street in Chatham, a mostly-Black neighborhood on Chicago's South Side. An audit by the City of Chicago Office of the Inspector General finds that city officials have not evaluated whether the banks doing business with the city are providing inclusive and equitable financial services throughout Chicago. Katherine Nagasawa / WBEZ News
Chatham homes
Single-family homes are pictured along a residential street in Chatham, a mostly-Black neighborhood on Chicago's South Side. An audit by the City of Chicago Office of the Inspector General finds that city officials have not evaluated whether the banks doing business with the city are providing inclusive and equitable financial services throughout Chicago. Katherine Nagasawa / WBEZ News

City Watchdog Says Chicago Has Failed To Verify If Its Banking Partners Are Lending Equitably

The city of Chicago is squandering an opportunity to force banks to lend more equitably throughout Chicago’s communities.

That’s the gist of a new report out from Chicago’s Office of Inspector General (OIG). It finds the city’s process for designating banks to hold hundreds of millions of dollars in city deposits is uncoordinated and lax.

Banks can continue to lend inequitably — and even charge predatory interest rates — but still partner with the city, the report finds, because there’s little cooperation between the City Council, Department of Finance, and the city’s elected Treasurer.

The process of choosing banks to hold the city’s deposits is supposed to occur on an annual basis under state law, according to the OIG report. But that has not happened. In fact, before this year, the city council’s Committee on Finance was completely derelict for more than a decade in its duty to review banks.

One bank hadn’t reported its lending practices to the city since 2012, yet it continued to serve as one of the city’s depositories while other banks that didn’t have a contract with the city applied for six consecutive years before getting their application reviewed, the report said.

The last time the City Council’s Finance Committee voted to approve which banks it wanted to hold the city’s money was December 2015.

If aldermen fail to take a vote certifying municipal depositaries, all currently approved banks can continue to do business with the city until a new Municipal Depository ordinance is approved. That means the city by default continued to do business with banks for years without reviewing their lending practices.

In a number of cities across the country, activists have pressured municipalities to dump big banks for social justice or environmental reasons. The OIG report notes that several cities, including Chicago, have adopted responsible banking ordinances as a means to hold banks accountable for their lending practices. Chicago’s version, which was passed in 2012, requires that banks seeking to hold the city’s deposits provide a mountain of information about their lending — information that the city is supposed to use to determine if the banks are lending equitably.

The OIG report said it appears, in Chicago, that relationships with banks were prioritized over encouraging equitable lending.

During most of the time that aldermen failed to vote on municipal depositories and failed to review their lending practices, the Finance Committee was under the control of Ald. Ed Burke, 14th Ward, who listed many of the banks applying to do business with the city as clients for his private law firm.

Burke was stripped of his long-standing chairmanship in 2019 when he was indicted by the feds for allegedly abusing his power as Finance Chairman to enrich himself and his law firm.

The Inspector General’s examination of the municipal depositories process comes a year after WBEZ and City Bureau revealed that for every dollar banks lend in Chicago’s white neighborhoods, they loan only 13 cents in majority-Latino neighborhoods and just 12 cents in the city’s black neighborhoods.

This includes banks the city was doing business with despite requirements that these financial institutions sign affidavits pledging to address various equity goals related to their lending practices within city limits.

At any given time, Chicago has $400 million to $500 million in accounts at various financial institutions, according to the city treasurer’s office, and uses large banks — including Chase, Fifth Third, BMO Harris and PNC Bank — to collect payments, pay its bills and for operations like payroll.

JP Morgan Chase and Fifth Third were cited in the WBEZ/City Bureau report for their dismal mortgage lending practices — less than 2% and 6% of their home purchase lending, respectively, was invested in the city’s predominantly Black neighborhoods from 2012 through 2018.

Since the WBEZ/City Bureau report, some aldermen have been trying to hold the banks accountable to these equity goals. Ald. Harry Osterman, 48th Ward, Chairman of the Council’s Housing and Real Estate Committee, tried to put pressure on some of the banks earlier this year with a hearing on equitable lending but was snubbed by the banks.

“It’s critical that the people that we do business with the city, specifically banks in this case, are reinvesting and supporting neighborhoods who need it most, communities in the South and West Side of the city of Chicago,” Osterman told WBEZ. “ I think [the OIG] report underscores that we’ve got to have better coordination when it comes to this process.”

In June, Osterman introduced an ordinance to further regulate the city’s municipal depositories, and eight aldermen have signed on as co-sponsors.

That ordinance would make data around lending in the city’s neighborhoods more transparent and available to the public. It would also require bank representatives to appear before aldermen to address questions about their lending practices.

Linda Lutton covers Chicago neighborhoods and Claudia Morell is a metro reporter for WBEZ. Follow them @claudiamorell and @lindalutton.