Matthew Lee is linking the monitoring and advocacy work of international human rights and environment organizations to an American movement that seeks to promote ethical business practices in international banking.
The New Idea
Matthew Lee leads an American movement that seeks to promote ethical business practices in international banking. Matthew¡¦s conviction is that, with the globalization of corporate finance, the same principles of ethical investment and community reinvestment that apply to American banks¡¦ domestic operations should apply to their international business as well. While the United States has laws and procedures by which citizens can hold banks accountable to their public responsibilities, notably the Community Reinvestment Act (CRA), those mechanisms do not yet exist beyond U.S. borders. Nevertheless, around the world the citizen sector monitors and documents the negative effects that business sometimes has on society, everything from pollution to corruption to economic exploitation to outright violence. While companies and their stockholders have been the target of advocacy and pressure campaigns, some successful, others impotent, the banks that finance corporate operations have not yet been pulled into the spotlight of citizen scrutiny.
Matt Lee¡¦s system of accountability was launched 1992 in the South Bronx when he first used the Community Reinvestment Act to challenge the inequitable lending practices of banks. The CRA requires that banks and other financial institutions provide equitable resources (credit and financing) to all communities throughout the U.S. Matthew¡¦s challenge resulted in a $5 million lending pledge by the respondent bank. Subsequently, Matthew used this precedent to get four other banks to open new bank branches in the South Bronx (the first new branches in that community in 30 years), and to pledge $15 million each in new lending.
Building on his local success, Matthew founded the Inner City Public Interest Law Project in 1998. He expanded his project nationally, challenging banks through the regulatory process using the CRA. Banks cannot merge without approvals from their regulators. Based on the CRA, regulators establish a comment period, accepting and considering public comments on merger applications. This is a critical period: banks desire expedited review and approval, but substantive issues documented and raised can lead to a longer, and more high-profiled review. Matthew¡¦s program is two-fold. First, Matt uses his thorough understanding of the banking industry to make banks responsive to low-income communities. Matthew analyzes the application process for bank mergers, compiles convincing data on redlining, issues briefs, proposes rules, and files petitions on behalf of the local community group. In addition, he mobilizes the communities involved, uses the press and organizes hearings to bridge his constituency with the banking community.
Since founding the Project, Matthew¡¦s work has resulted in $10 billion in new lending commitments throughout the U.S., specifically in Delaware, Wisconsin, Texas, New Mexico and New York City. In addition, Matthew has trained numerous community groups in his methodology for researching data and filing comments during the merger review period.
Matthew now wants to spread his model of regulatory reform and public involvement more globally. The object of Fair Finance Watch is not to simply oppose bank mergers, but to change the standards under which ¡§mega banks¡¨ operate in a global society. Matthew recognizes the short window of opportunity to discuss and negotiate with bank executives and regulators. Through his network of organizations, domestic and global, he will leverage the CRA with human rights issues to provide low-income communities around the globe with access to credit and socially responsible treatment. In addition, he will train those groups typically involved in human rights and environment campaigns to understand the virtues of community reinvestment practice.
Low-income communities across the U.S. are often excluded from banking and financial resources at fair terms. Without loans or credit, low-income residents cannot buy homes, start or expand small businesses, or turn around their communities. In the United States, inability to get a bank loan is a social and civil rights issue, not just a business decision. Mortgage lenders denied conventional home purchase mortgage applications of African Americans two times as frequently as applications of whites, and those of Latinos 1.8 times as frequent. The disparities remain even when controlling for income differences.
Nevertheless, over the last 25 years four major pieces of legislation have dramatically affected the relationship between financial institutions and low-income and minority communities in the United States. In 1975, the Home Mortgage Disclosure Act (HMDA) required lending institutions to report public loan data, enabling consumer advocates the right to monitor institutional loans. And in 1977, the HMDA was supplemented by the landmark Community Reinvestment Act (CRA). This legislation encouraged depository institutions to help the credit needs of communities in which they operate. To some degree, this Act gave consumer rights advocates the ability to hold financial institutions accountable for unfair community lending practices. But the banking industry was also changing. The Interstate Banking and Efficiency Act of 1997 allowed banks to acquire or merge with other banks across state lines. In 1999, the Gramm-Leach-Bliley Act (Financial Modernization Act) allowed banks, securities firms, and insurance companies to affiliate within a new financial holding company structure. This law weakened the CRA by allowing banks to purchase, or be purchased by, insurance companies and securities within the U.S. and beyond, without simultaneously expanding the CRA along with these new possibilities. While the 1977 CRA allowed residents of low-income communities to monitor banks¡¦ community reinvestment disparities, the Financial Modernization Act of 1999 permitted banking mergers with institutions not accountable to the CRA, leading to a need for new strategies of accountability. In addition, as banks merged within the U.S., local communities had difficulty holding the corporate headquarters, located in another state, accountable to local practices.
With the creation of global mega banks, the weakening of the CRA, and the absence of an international CRA, current CRA organizations have had difficulty holding the banking industry accountable to standards of corporate responsibility. Furthermore, as major U.S. banks increasingly ¡§globalize¡¨ their businesses, there is little or no way to hold them accountable beyond the U.S. border.
In addition to local CRA organizations, there are a number of organizations dedicated to global issues such as human rights and environmental justice that have a keen interest in the companies financed by mega banks. These private financial institutions, which global non-governmental organizations are only recently beginning to monitor, still have few social or environmental standards, and are not effectively regulated in this regard, making environmental harm and violations of human rights more likely. The challenge for both CRA groups and human/environmental rights organizations is to link agendas for socially responsible practices by, and transparency and accountability of, industries financed by mega banks.
Since 1992, when he started focusing on bank accountability, Matthew has used the Community Reinvestment Act as his mechanism for regulatory reform. His strategy has leveraged millions of dollars in loan and credit commitments to low-income communities.
Matthew¡¦s core strategy of legally questioning mergers is based on his ability to problematize, and expand the scope of review on banks¡¦ merger applications. An important aspect of Matthew¡¦s work is that he takes an objective view to negotiations. He considers a regional approach to settling issues rather than individual settlements. By blocking government approval of an impending merger, and bringing media attention to the poor lending policy of the institution, Matthew is able to gain commitments on behalf of communities.
The core of Matthew¡¦s role is the research, training, and filing on behalf of low-income communities. When Matthew is called into a community, usually by a local neighborhood group or community development corporation, he assesses the flow of credit, capital and financial institutional infrastructure. From there he galvanizes community groups around his approach. His incredible success in New York has gained wide popular attention in other communities.
One example of Matthew¡¦s work is a filing he made in April 2001, with the Canadian bank regulator, the Office of the Superintendent of Financial Institutions (OSFI). The largest bank in Canada (Royal Bank of Canada) applied to acquire a bank in the United States, which also owns a high interest rate mortgage lender. Data that Matthew reviewed and analyzed showed that the U.S. bank¡¦s affiliate lender disproportionately targeted African-Americans with its high interest rate loans. Matthew raised this issue not only to the U.S. Federal Reserve, but also to the OSFI, with an innovative legal argument that since Canada is a signatory to numerous United Nations human rights conventions, OSFI is required to answer the charges and the regulator¡¦s questions, and to make assurances that appropriate safeguards will be put in place. This would not have happened, and this innovative argument would not have been tried and proved successful, if Matthew had not already begun implementing his new idea. Matthew will now work closely with community advocates to leverage the needs of the community against the Canadian Royal Bank¡¦s commitment to passing the federal merger application.
The next stage in Matthew¡¦s strategy is to move into the global finance arena, particularly in cases of U.S. banks backing questionable projects abroad and international banks acquiring U.S. financial institutions (similar to the Canadian Royal Bank example). To hold the financial institutions accountable, Matthew is linking with large global organizations such as Friends of the Earth, the National Wildlife Fund, Rainforest Action Network, and Global Exchange. These organizations have corporate accountability campaigns but lack the expertise around slowing down the merger process.
Over the next six months Matthew will start with representation in the international arena, focusing on two organizations. In the next year Matthew plans to represent additional groups, develop a how-to manual and examine other areas of interest based on collaborations with global organizations. He hopes to eventually build the staff infrastructure to allow two attorneys to monitor industry trends and negotiate settlements, while three community liaisons work with community and global partners.
Matthew was born in Washington, D.C., to parents of Chinese and Anglo descent. His father was in the American Foreign Service, specializing in international law. After finishing middle school overseas, Matthew went to boarding school in the U.S. Following boarding school he attended Harvard College, where he sought social activist professors to shape his study. His outside interest in volunteering at the Catholic Worker brought his academic framework of social activism alive.
Matthew was so taken by his extracurricular experience that he took a leave of absence from Harvard to volunteer full-time at the New York office of the Catholic Worker. While at the Catholic Worker he learned about the concept of ¡§homesteading¡¨: people beginning to repair and live in unclaimed buildings until common law granted them property rights. Matthew put homesteading into practice, moving into an abandoned five-story building. While there he recognized the vast number of abandoned buildings in the Bronx: the genesis of his idea to provide housing for the homeless via legal homesteading.
Matthew started Inner City Press as a way to inform and eventually teach people how to attain the housing they needed in abandoned properties. This brought positive media attention to Matthew¡¦s cause and group. With this win, they started a movement throughout the city of legal homesteading. Matthew created Community on the Move as a vehicle to develop the abandoned properties, and give voice to the people who repaired and live in the buildings.
In leading the homesteading of many properties and surviving many battles with the City of New York housing agency, Matthew recognized that banks¡¦ unwillingness to lend in the South Bronx (and neighborhoods like it) played a role in the initial abandonment of the properties, and made rehabilitation of the buildings more difficult. Matthew had the epiphany that without credit or lending institutions, a community cannot fully advance its improvement agenda.
Legal Aid attorneys suggested that Matthew use the Community Reinvestment Act as leverage for accessing credit and capital. Matthew thoroughly studied the law and learned that banks are required to loan within the ¡§community.¡¨ Matthew researched the locations of the bank and the number of deposits coming to the Bronx. Using this information_and without any formal legal training_Matthew challenged New York area banks to open a local South Bronx branch and provide loans to the community. His victory hailed a bank branch and loan commitment of $5 million; subsequently, using this precedent, four other banks opened new branches and committed $15 million each. It also spurred Matthew to attend law school.
Bank representatives, regulators and community activists now call on Matthew for comments on mergers of financial institutions. He is viewed as a tough, yet fair, colleague in the field. Since 1994 the total number of secured commitments leveraged by Matthew¡¦s efforts, has totaled over $10 billion. Beyond the commitments, Matthew has trained numerous community groups to research critical lending data in their communities and to hold banks accountable.
Matthew realizes that as banks expand beyond the U.S., he must expand his strategy internationally and incorporate others into his work on global issues. According to Matthew, ¡§Banks are financial intermediaries. They have a large role in society and play a crucial role in public policy that really is not monitored.