CDPS Blog

Leveraging Resources for Small Businesses in Detroit

December 26, 2012

During the past year, the Federal Reserve Bank of Chicago’s Community Development and Policy Studies division has been studying the changing financial landscape of Detroit and its implications for access to financial services and lending to small businesses in the city’s low- and moderate-income neighborhoods. As documented in the study, in the city of Detroit, the number of banks, both large and small, has fallen sharply over the past two decades.  This contrasts with trends across the U.S. that show a decline in smaller banks (less than $1 billion in assets) but an increase in large banks (more than $1 billion in assets) since the Riegle Neal Interstate Banking and Branching Efficiency Act was passed 1994. Today, the number of banks per person in Detroit is comparatively lower than in other cities with declining populations.  According to this study, low- and moderate-income census tracts in the city – the neighborhoods where residents tend to have relatively lower incomes – have even fewer bank branches than would be predicted given the population, median income and other characteristics of those neighborhoods.  While greater bank access is an indicator of the well-being of a community, the same study has found that bank presence does explain, in part, the extent to which small business lending occurs in low and moderate-income neighborhoods (but not middle/upper income neighborhoods).

Source: Authors' calculations based on FDIC Summary of Deposits

On October 16–17, the Chicago Fed, the Michigan Bankers Association and the New Economy Initiative for Southeast Michigan co-sponsored a symposium in Detroit that brought together business experts and owners, policymakers, bankers and other funders to address the potential role that financial institutions and other organizations can play in leveraging resources for small businesses in Detroit. Over the course of the two-day symposium, presenters underscored that many resources exist for small businesses in Detroit and surrounding counties, covering legal, financial, management and marketing services.  Foundations, city planners, the state and other civic organizations have been actively involved in developing new resources for small businesses.  As presenters discussed the challenges to increasing bank lending for small businesses in Detroit, many of the speakers and audience members offered ideas for drawing banks more closely into the conversation about neighborhood revitalization and leveraging bank and nonbank re­sources to finance small businesses.

For a more detailed summary of the symposium please read the Chicago Fed Letter co-authored by Robin Newberger and Maude Toussaint-Comeau Developing Small Businesses and Leveraging Resources in Detroit. To view materials from the Developing Small Businesses and Leveraging Resources in Detroit events page on the Chicago Fed website.

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