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Trimble: Lessons from the Indian banking sector

In the final months of 2008, as I watched some of America’s largest financial institutions teeter on the verge of bankruptcy, and some of the financial giants fail, I thought of my own experience on the board of directors of the American Indian National Bank from 1975 – 1986.

It wasn’t that AINB management or the board did anything greedy or illegal, as was the case in some of the large institutions, but we learned how sorely lacking we were in knowledge and experience in the highly competitive and volatile world of banking and financing.

It did no good to remind them that they were ripping off tribal and Indian individual investors, not the federal government.

Although it had a short life of 11 years – from 1975 to 1986 – AINB was a noble effort. It was begun by several prominent Native Americans, including past Congressman Ben Reifel, R-S.D., and Fred Massey Sr., a retired federal official. This group was able to secure a million-dollar loan from the International Bank, and invited tribes to invest in capitalizing it. Public shares were also offered with preference given to Native Americans. This eventually grew to approximately $48 million in assets. The founders had also hoped to “hold” certain appropriated federal funds until they were delivered to tribes and programs in Indian country. This would let those funds earn money for investment in Indian economic development projects. This however did not happen.

That initial group comprised the founding board, and had agreed that, at the time of the charter, they would resign and help constitute a new permanent board. With qualifying shares invested, I was invited to be on the permanent board.

Although the AINB did not fail, neither did it earn much money for the investors. There were problems from the start with the distance between the Washington-based AINB and its primary market, most of which was in the western part of the country. As a result, we could not effectively market or service accounts. It was difficult to assure that collateral was as described or how a venture was progressing. There were no provisions for inter-state banking at the time, so we were only able to establish a loan generation office in Albuquerque to market the bank and generate business among the tribes.

Another problem from the start was the lack of understanding of banking among our markets. With tribes and individuals on reservations virtually red-lined by border town banks, there was little experience in justifying loans, and repaying them. On the reservations, many saw us as another source of federal funds, even though we had no federal support whatsoever. Only much later did AINB administer an EDA loan program for reservation cattle businesses.

Direct loans from the BIA’s Indian Financing Act program were often based on political considerations and favoritism, and difficult if not impossible to collect; thus defaulting on those loans was largely painless. So, the only experience reservation businesses were getting was not in hardcore banking. Being headquartered in Washington, we were looked upon by some as just another source of soft money and our default and loss rates were high.

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Those times are far enough past that I don’t feel like I’m breaching any trust or confidence by revealing that there were some real rip-offs on the part of some high and powerful Indian leaders of that time, some still around today. It did no good to remind them that they were ripping off tribal and Indian individual investors, not the federal government.

It was not long before the Office of the Comptroller of the Currency detected the sorry condition of our loan portfolio and the bank examiners were crawling through our files. Many of our loans were classified by them, and had to be written off, and funds taken out of liquidity to cover them. We were further placed under a cease and desist order, one step away from receivership, and we had to begin an intensive process of replacing key staff, improving systems, and upgrading our loan portfolio.

We learned how sorely lacking we were in knowledge and experience in the highly competitive and volatile world of banking and financing.

The Comptroller’s office was strict, stern and arrogant, coming into board meetings unannounced, suspending the agenda, and demanding information or railing against the management. At one point, although I did not accuse them of outright racism, I did suggest we were singled out and being harassed because we were an Indian bank. The examiner readily agreed that I was right, that it was precisely why they were keeping an eye on us. Their reasoning was that with such banks as the Women’s Bank and ethnic interest banks such as ours, our purpose was largely altruistic, and their experience showed that this softened the drive for profit and was generally a formula for failure.

I recall another incident from which I learned a great lesson. In response to criticisms of our many high-risk loans, I said AINB was in business to make high-risk loans. I meant only that because reservation border town banks considered all Indian country as too high-risk, we were trying to fill the need for investment capital on the reservations. I didn’t make myself clear, and as I spoke one of our tribal board members, an elderly man from Uintah-Ouray or the Yakama Tribe, was shaking his head, his long braids swaying as he did. After the meeting, he said to me, “I don’t know how much you have invested in this bank, but my tribe’s investment is very big, and we don’t like making risky loans.”

We worked our way out of the cease and desist order, and the business began to grow. Nevertheless, we felt that we had learned a lesson: that we shouldn’t be running a national bank. The board was able to sell the bank at a profit, helped by the fact that there was a freeze on new bank charters in Washington, and several banks wanted to buy ours.

Later I got to appreciate the Comptroller of the Currency’s actions. Even their arrogance and rudeness helped us realize what dangerous straits we were in, for if we failed, our own homes and property could be used to help settle the loss. Since those times much banking deregulation has taken place and I feel that, had those feds been around today, bankers would not have been so freewheeling with investors’ money and many would not have failed.

Charles E. Trimble, Oglala Lakota, was principal founder of the American Indian Press Association in 1970, and was executive director of the National Congress of American Indians from 1972 – 78. He is retired and resides in Omaha, Neb., with his wife. He can be reached at