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Experts say bank ownership 'not a good fit for all tribes'

SCOTTSDALE, Ariz. - Creating or buying a bank may not be the way for many tribes to go, several American Indian finance experts told a "Banking Opportunities in Indian Country" seminar sponsored by the Federal Reserve Board here.

Lance Morgan, Winnebago, made the point first, saying that the capital used to acquire or create a bank, as well as capital that must be held in reserve after it opens, may be too much money to be tied up for a tribe. Morgan is president of Ho-Chunk Inc., the development arm of the Winnebago tribe.

For tribes just starting to develop an economy, "I'm not convinced that banks are the answer," he said. The capital used becomes "dead money" that would be better employed for general economic development.

Banks may make sense for tribes that have reached "mid or late stage" economic development, he said, but "if you put your money in a bank and you don't have an economy, you're going to have trouble."

When the Winnebago tribe was starting out with Ho-Chunk in 1995, it had trouble getting financing, Morgan said. Finally, a bank gave it a loan when the tribe moved its deposits into the institution.

It has now bought a five-percent share in a local bank, and is looking to alternate methods of financing, like issuing bonds. "One day we're going to do one (bond financing)," Morgan said.

But starting or buying a bank may be four to six years away for the tribe, he said.

Morgan drew what seemed to be a surprising concurrence from the president of the trade group that represents Indian-owned banks, the Native American Bankers Association.

"A commercial bank is not the (only) answer," said J.D. Colbert, Muscogee. "I don't know of anything that is the (only) answer."

Colbert said Indian country should try to replicate all the intermediaries used to access capital in the dominant culture - including commercial banks, credit unions, community development financial institutions, small business investment corporations, mortgage companies and bond financing.

Colbert later said his group is looking to expand outward from the current 17 tribally or individual Indian-owned banks to represent those other kinds of intermediaries as well.

Stephen Cornell, director of the University of Arizona's Udall Center of Studies in Public Policy, joined the chorus, saying "starting a bank is not for everyone. You have to be very sure what you bring to the party in starting a bank."

Cornell said nations interested in starting banks should ask themselves if they have the organization necessary successfully to operate one.

Two barriers to this, he said, are the instability of tribal government, and the fact that tribal enterprises tend to be heavily influenced by tribal councils, which may cause outside investors to shy away.

"Getting into the banking business is a very big step," he warned.

Rebecca Adamson, Eastern Cherokee, president of the Virginia-based First Nations Development Institute, also said that banks may not be every for tribe. "Not every tribe is going to have a bank. So you're going to have to have a banking relationship," she said.

Pointing to the big mergers which have created the current Wells Fargo Bank, Bank of America and Bank One, she said these mergers included areas of 38 states with a total population of two million Indians, from 516 different tribes.

Keynoting the event, which drew more than 400 attendees, was Federal Reserve Board governor Mark W. Olson.

Olson, while acknowledging the severity of the barriers to capital access in Indian country, said some progress has been made, including an increase in the number of Native entrepreneurs and in the number of home mortgages extended to Indians and Alaska Natives.

These gains "represent important, hard-won advancements in improving the socioeconomic status of Native Americans and Alaska Natives," he said. "They also demonstrate the perseverance of a community that is working to achieve economic viability while maintaining its cultural identity. The challenges confronting Native Americans in creating sustainable economies on tribal lands are not insignificant, but they are surmountable."