Heavier Scrutiny for Banks' Charitable Donations Could Backfire

Thousands of nonprofits across the nation seek donations from the world's largest innovative philanthropic mechanism: corporate America.

Last week, two California activist groups, the Greenlining Institute and the California Reinvestment Coalition, inadvertently challenged this generally successful multibillion-dollar corporate philanthropy model. Each submitted public letters to the Office of the Comptroller of the Currency and the Federal Reserve demanding an investigation of corporate philanthropy by OneWest Bank and the CIT Group in light of the banks' proposed merger.

This unusual demand could set a potentially harmful precedent. There will be an increasing number of bank mergers and acquisitions over the next five years. Scrutinizing the philanthropic contributions of virtually all large and midsize banks could wind up putting contributions in jeopardy.

Banks usually try to avoid actions that could ensnare them in additional red tape and oversight. Therefore adding this sort of unnecessary regulatory hurdle could create too onerous of a burden on donations and stifle innovative and effective mechanisms for contributions.

Bank donations have taken on even more importance since many nonprofits have experienced precipitous declines in government funding in the aftermath of the financial crisis beginning in 2007.

Wells Fargo, for example, gave $275 million to thousands of nonprofits in 2013 and is expected to increase that amount 3% annually, according to a July 2014 article in the Chronicle of Philanthropy. The same article reported that Wells Fargo, Goldman Sachs, JPMorgan Chase, Bank of America and Citigroup combined are likely to provide $1.2 billion to nonprofits this year.

Unlike churches, small-business chambers and 99% of nonprofits, the two advocacy groups that want to scrutinize banks' philanthropic contributions provide no direct services to the community. The advantage is that they are theoretically free from even community concerns, enabling them to espouse far-reaching public interest principles that could benefit all of us. But sadly this is not always the case.

In contrast to the two activist groups, the National Diversity Coalition, a grassroots service-based organization, has a different take. The coalition brought 225 community leaders to the public hearing on the merger between CIT and OneWest to express support for the deal.

The coalition largely focuses on furthering the Federal Reserve's goals of reducing income and wealth inequality. Our programs partner with the corporate world at large, including banks.

For example, during the last two months, five banks have agreed to an innovative homeownership program with Freddie Mac that could produce up to 1 million additional low- and moderate-income homeowners a year and help minorities accumulate wealth through homeownership.

Similarly, six financial institutions over the last two months have agreed to work with us on an innovative microbusiness program focused on minority communities. And we expect more than 25 corporations, a majority of which are likely to be financial institutions, to participate in our forthcoming immigrant youth financial education program where 1,800 low-income Latino immigrant youth will meet in Santa Ana, California.

None of these efforts would be possible without enthusiastic support from financial institutions and their senior executives. If philanthropy is in any fashion tied to scrutiny, we expect that companies that would otherwise readily agree to charitable efforts will start to hesitate, producing more refusals and delays and uncertainty at best.

It is possible that grassroots groups and advocacy groups will never reach full agreement about the proposed merger between CIT and OneWest, but there is one area where we should be unified. We urge all financial institutions seeking acquisitions to make two commitments that will help our nation reduce income and wealth inequality.

The first is a commitment to achieving an "Outstanding" Community Reinvestment Act rating. The second is that 0.05% of FDIC-insured deposits annually go to CRA-related philanthropy. This alone could more than double financial institution philanthropy to hundreds of thousands of nonprofits.

Pastor Mark Whitlock is the senior pastor for Christ Our Redeemer Church in Irvine and chair of the Orange County Interdenominational Alliance. Gilbert R. Vasquez is chairman of the Los Angeles Latino Chamber of Commerce and chairman of the largest Latino CPA firm in the nation. Both are founding members of the National Diversity Coalition.