October 8, 2010; Source: Los Angeles Daily News | The CEO of Los Angeles LDC, Inc. makes a strong argument in this article for the role of Community Development Financial Institutions (CDFI’s). He argues that the reliance on traditional commercial banks for economic development lending was misplaced. A commercial bank’s first priority is, “not to promote economic development with lending that they consider ‘risky’, but to take deposits, make short-term loans, and produce returns for shareholders,” says Banner. The result, he says, is that bank loans to credit-worthy businesses have dropped $40 billion between the second quarter of 2008 and the first qarter of 2010, despite TARP and ARRA grants.

For economic development on “Main Street,” Banner suggests that nondepository CDFI’s can play a role by providing microloans and Small Business Administration loans and by arranging Industrial Development Bonds. We agree that there is a significant, demonstrable upside by putting government money into and through CDFI’s to stimulate local economic development activities. But no one should read Banner’s argument or our endorsement of CDFI’s as letting the big TARP-subsidized banks off the hook.

The fact that bank financing dried up after the market collapse and hasn’t hugely revived despite the combination of federal subsidies made available to them is an intolerable consequence of a lack of governmental oversight and inattentiveness. We think CDFI appropriations should double, triple, or quadruple, SBA loan limits should be increased, philanthropy should put Program Related Investment’s and Mission Related Investments’s into CDFI’s, but no one should let the big banks off the hook for their responsibilities to the American economy.—Rick Cohen