Shared-Branch Idea Would Have Worked in Miami
From: American Banker
Friday, February 14, 2003

To the Editor:

The article "Shared Branches Helping Credit Unions Cut Costs" [Feb. 12, 2003] notes that "banks may eventually try sharing branches."

Having extensively studied shared credit unions and other business models, I first proposed shared bank branches in a February 1985 Savings Institutions article and followed with specific written proposals to the Federal Reserve's Consumer Advisory Council in 1986 and the American Bankers Association in 1987.

Although shared branches could be located anywhere, I argued they should be targeted for communities without any branches, such as inner cities and small rural towns.

With no regulatory or industry interest, several years later in 1993 I convinced a group of banks in Miami to create the nation's first shared branch in Overtown. This downtown community of 12,000 residents, mainly African-American, had been without a bank branch for 40 years. The group of about 15 banks included giants such as First Union, NationsBank, SunTrust, Citibank, and Barnett as well as community banks like Republic National Bank.

The banks and even regulators, especially the OCC, were enthusiastic over this proposal, and a formal business plan was submitted in March 1994. Everything was moving well until the president of Peoples National Bank of Liberty City, the state's only African-American owned and operated bank, published an April 9, 1994 letter in the Miami Herald. He called the shared bank branch an "inherently racist and insulting scheme" that was "patently discriminatory," as it would never be proposed for a suburban or other area.

This was followed by a similar editorial in the Miami Times, the "South's largest black weekly," but it did not disclose that the publisher emeritus of that paper was one of the four investors in the Liberty City bank.

The protesting bank not only initially refused to be part of the Miami banking group but also had no interest in opening its own branch in Overtown. That bank, which had only three HMDA loan applications (all denied) for an entire year, later was placed under a C&D order by the OCC and ultimately failed.

But, the damage was done, as the "race card" had been played, and every bank in the shared branch group quickly walked … except for the predominantly Hispanic RNB, which took the bold step of opening a stand-alone Overtown branch in 1995. By midyear 1997 the branch had but $1 million in deposits and $0.7 million in loans, and the most recent midyear 2002 FDIC data show that it is still below $3 million in deposits, hardly a level that can be considered anywhere near profitable.

The shared branch model, by comparison, would have spread any losses among several banks and likely attracted much more business, thus allowing for the possible opening of shared branches in other unbanked areas of Miami. Union Planters, which acquired RNB several years ago, must be commended for the continued operation of its Overtown branch.

My more than one year of pro bono work on this project convinced me of the feasibility of shared bank branches, especially for unbanked communities. I stand ready to share my experience and expertise with any community, banking, or regulatory group that wants to pick up the shared bank branch torch.

Kenneth H. Thomas
Lecturer in finance
Wharton School
University of Pennsylvania

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