Banks are not always the answer

SEATTLE - Recent good news on the comparative performance of Indian-owned banks should be tempered with a reminder that banks are not always the best pathfinders to tribal economic development, according to Craig Nolte of the Federal Reserve Bank of San Francisco.

Nolte has been the shaping influence behind the San Francisco Fed's "Sovereign Lending" workshop series in recent years. After the better part of a decade working on Native-specific banking and financial issues, he would be the last person to pour cold water on tribal bank ownership.

But by way of a balancing cautionary note to the good news put out by North American Native Bankers Association in Indian Country Today (Vol. 23, Iss. 14) Nolte said that tribes must be careful not to assume that because Indian-owned banks are doing fairly well against all-bank averages, they should therefore start a bank. Many tribes may want to do so in the name of getting economic development loans out the door to tribal members. But in such cases, it may be wiser to work on the issues that often prevent tribal members from getting loans in the first instance - financial literacy, credit repair, loan application training, etc. Local and national efforts are under way for tribes in each of these areas, Nolte said.

Native Community Development Financial Institutions should not be considered an alternative to Indian-owned banks without rigorous research first, he added. CDFIs are non-profit organizations that provide low-income clientele with many banking services banks would charge more for, if they performed them at all. They do not penalize clients for faulty money management at the same rates banks would; and they tend to make loans at much lower rates of interest. But because of all that, Nolte said, they absorb many costs while their ability to generate profit is limited. In short, a Native CDFI can be an expensive proposition.

Finally, Nolte said that not all Indian-owned banks are entirely owned by tribes. Similarly, some Indian-owned banks are owned by individuals, not tribes. So even for tribes that put all possible due diligence into deciding to own a bank, sole tribal ownership may not be the only answer.