On the trail

FINANCE & ECONOMICS

Banking for Native Americans

Feb 17th 2005 COMANCHE COUNTY, OKLAHOMA
From The Economist print edition

The market in financial services for Native Americans is growing, thanks not least to Indian-owned banks

THE heart of the Comanche Indian nation sits on a hilltop next to Interstate 44 in south-central Oklahoma. From here the 12,000-member tribe, self-proclaimed “Lords of the Plains”, oversees businesses that include four casinos, a funeral home, a housing authority, a water park and a museum. The tribal budget has ballooned to $11m this year, thanks largely to money from gambling. Now there are plans for a 5,000-seat convention hall and a hotel. Despite past discrimination from some local bankers, the Comanche leadership—its chairman has a graduate degree from Harvard and the chief financial officer ran a defence-contracting business—is talking with institutions including Merrill Lynch, Lehman Brothers, Bank of America and Bank of Oklahoma about finance for the project.

Changes are afoot in Indian country, and financial institutions are taking notice. Recently Wells Fargo and J.P. Morgan Chase were among the sponsors of “Res 2005” in Las Vegas, an annual trade fair focused on economic development for Native Americans. But despite the efforts of big banks such as Wells Fargo, which has approved commercial loans and credit lines of about $1.5 billion, as well as mortgages, and Washington Mutual, which is in the mortgage business, tribal leaders contend that most of the nation's 2.4m Native Americans remain underserved. Hence the trend toward native-owned banks.

Robert Williams, an expert on tribal law at the University of Arizona, says that Indian country is increasingly divided between the haves (the minority of tribes, like the Comanche, with successful gaming ventures) and have-nots (everyone else). Generally, Native Americans are much poorer and less familiar with banking services than the average American. They are more likely to be denied conventional home-purchase loans. Tribal banks are stepping in to plug the gaps.

The North American Native Bankers Association, a trade body, counts 19 banks nationwide that are owned by tribes or by individual Native Americans. Of these, 11 are in Oklahoma, a state with a rich mix of Indian groups but without huge reservations. Most of the banks are small, with average assets of only $79m, but several are growing fast, and serve not only Indians but other Americans too.

One tribal bank gaining national attention is Bank 2, based in Oklahoma City. Wholly owned by the 40,000-member Chickasaw tribe and with $62m in assets (on September 30th 2004), it is a growing player in the national market for mortgage lending to Indians, thanks in part to effective use of a federal home-loan guarantee programme known as Section 184 and a partnership with Fannie Mae, one of America's giant mortgage companies. About half of Bank 2's customers are Indians, and it does business with more than 80 tribes, including the Comanche. So far it has made no loans tied to casinos. Ross Hill, its president, and J.D. Colbert, who runs its Native American business, both former Federal Reserve officials, often criss-cross the country, speaking not only to prospective customers but also to other tribes about starting their own banks.

In Denver, a coalition of 18 Indian tribes, two Alaskan native groups and a tribal insurance consortium runs a venture called Native American Bank. The bank, which has assets of $52m, focuses on underserved Indian communities in remote places. Its president, John Beirise, a non-Indian formerly with Continental Bank in Chicago and Mercantile Bank in St Louis, says that one of his unexpected challenges has been “the pervasiveness of politics” in Native American communities and the way it slows change.

Indeed, some say that tribal politics and legal issues hinder Indians' economic advance more than a lack of banks does. “Banks are an effect, not a cause, of economic development,” argues Joe Kalt, co-director of a Harvard programme on Indian economies. Questions of land trust and sovereignty complicate business dealings with tribes, although a growing number of groups are adopting the uniform commercial code and granting waivers that allow banks and other businesses to recoup damages should things go wrong.

Steve Stallings, Wells Fargo's senior executive for native banking, says on the other hand that dealing with tribes is “no different from doing business with certain kinds of regulated industries, doing international business.” Even so, the lending system gets clogged. Mr Stallings estimates he could double his bank's volume of Indian mortgage lending if trust issues were resolved more easily.

Even non-casino tribes are getting more sophisticated about the political and legal reforms needed to get business and finance moving. “They're like little developing countries,” says Mr Kalt. Apparently, some people may even see them as models: he was recently invited to Poland, a country undergoing an economic transition of its own, to lecture on American Indian constitutions.

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