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Community Development

Photograph by Cabridge Jenkins, IV Age 13

Photograph by Cambridge Jenkins, IV Age 13

in community and economic development
Federal Reserve Bank of Atlanta
Volume 8, Number 2
Summer 1998
In This Issue

Being Accountable: A Descriptive Study of Unbanked Households in the U.S.
The subject of accountability in a discussion of the country's many unbanked households.

Federal Reserve System Conference on Business Access to Capital and Credit

The Economics of Small Business Finance
The complexity and economics of small business finance in the financial growth cycle.

Do Minority-Owned Banks Treat Minorities Better?
An empirical test of the cultural affinity hypothesis


About this issue

Seeing Things in Black and White

by Courtney Dufries

At first glance, things frequently appear to be so clear. It's right or it's wrong. It works or it doesn't. It's bankable or it's not. But the truth is, there is a lot of gray out there. What may have been right, or would work, or was bankable in the past, may not be so in the future. Upon further review, we sometimes discover a little less black and white and a whole lot more gray.

Community Development professionals recognize that the issues we confront, whether they are social, political, or economic, are often emotionally charged and contain tremendous obstacles. Sometimes we spend so much time "putting out fires" that we lack the time and expertise to thoroughly research the issues that we confront. Fortunately, a great deal of research has now been completed to help focus our attention on the significant issues we deal with every day.

And while the results are very interesting, not everything is black and white.

For example, there is no one reason why approximately twelve million U.S. households are "unbanked," and have no transaction accounts with a mainstream financial institution. But research conducted by Jeanne M. Hogarth and Kevin H. O'Donnell, at the Federal Reserve Board, helps shed light on who is unbanked, why, and what the implications are, especially as it relates to the new focus on electronic benefit transfer payments.

Perhaps it's not surprising that many minority applicants choose to apply for loans from minority banks because they feel a sense of cultural affinity. But are they more likely to be approved or denied the loan? Federal Reserve Board Economists Raphael W. Bostic and Glenn B. Canner present some interesting results in their study, some of which is excerpted here.

Finally, when we review small business loan programs and evaluate where entrepreneurs get their money, we discover some surprising results. A tremendous amount of research conducted by Allen N. Berger at the Federal Reserve Board and Gregory F. Udell, Stern School of Business, New York University provides considerable insight to the economics of financing small business.

This newsletter presents a small sample of the extensive research projects recently undertaken by experts working with the Federal Reserve System, and we sincerely appreciate the authors allowing us to present short excerpts from the research papers. Of course, the views expressed are solely those of the authors and do not necessarily reflect those of the Board of Governors of the Federal Reserve System, or of this Reserve Bank.

And to get the whole story, to get beyond the gray, you should read the entire report. For your free copy of the papers excerpted here, write to Partners at the address shown on the back cover of this issue.