Community Lending in the US: A Comparative Analysis of Citibank and Wells Fargo Community Lending Practices

Abstract

Credit banks in the United States provide specialized services to low-income communities through community lending projects. These projects provide financing for economic development projects for targeted beneficiaries, and, for... purchasing or funding small business loans, ... or community development loans,” including low-credit mortgages and low-interest term loans. Generally grouped as financial inclusion initiatives, these services represent a renewed endeavor amongst banks to strengthen Environmental, Social, and Governance (ESG) factors. This paper will examine the extent to which banks have been genuine community lenders, drawing on shareholder letters and annual reports from Citibank and Wells Fargo to qualitatively determine the institutions’ messages. From there, I will examine the balance sheets to account for the distribution of liabilities, particularly the extent to which ESG programs contribute to losses for banks. To further substantiate the extent of some of these practices, including fraudulent accounts and excessive overdraft fees from 2010-2018, the paper will draw on direct reports from the US Federal Government, including statements from the Department of Justice indicting Citibank & Wells Fargo for alleged illegal misreporting of profits and accounts. I will research data from academic papers published by the University of Michigan, the National Bureau of Economic Research, and the Annals of Regional Science. Ultimately, I will try to prove with these sources the extent of the risk community lending posed on corporate profits and whether the tradeoff can be ultimately profitable for the banks.