Bridges - Spring 2006

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PUBLISHED QUARTERLY

BY THE COMMUNITY

AFFAIRS DEPARTMENT OF

THE FEDERAL RESERVEBANK OF ST. LOUIS

L I N K I N G L E N D E R S A N D C O M M U N I T I E S SPRING 2006

BRIDGES w w w . s t l o u i s f e d . o r gImmigrantsWho Own

Businesses

Katrinas Legacy

More Americans Going Bankrupt

Spanning

the Region

continued on Page 2

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8 2

By Faith WeeklyCommunity Affairs SpecialistFederal Reserve Bank of St. Louis

Fast-food chains originatedthe concept of super-sized; however, big-box

retailers have taken the term to awhole new level. Today, big-boxretailers such as Wal-Mart, Targetnd Kmart have embraced the

trend of bigger is better and con-

tinue to develop mega stores thatoffer the convenience of shop-ping for a wide range of con-sumer goodsfrom groceries tolinens and anything in betweenthat a household might use.

The trend of building newsuper stores has left a trail ofvacant big boxes scattered

throughout cities and towns.Rural, urban and suburbanommunities are all struggling

with the reuse of vacant, largeretail space.

Julia Christensen, an art-ist and native of Bardstown,Ky., drove nearly 20,000 miles

across the country to learn howcommunities are reusing thesebuildings. She discovered thatthese empty stores have beentransformed into a variety of

usesmuseums, hospitals,churches, restaurants, car deal-erships and schools.

The buildings are appealingto businesses, churches andorganizations because theyare strategically located, withimproved roads and plenty

of parking, Christensen says.Location is the number one fac-tor, as in any real estate transac-

tion, that increases the appealof these empty retail spaces,and reusing space presents amore affordable option thanbuilding. Even so, the amountof space to be redeveloped canbe a costly challenge, and thebuyer will plan to develop thespace in phases as opposed to

all-at-once costs.In ustin, Minn., an empty

Kmart sat vacant for severalyears, which caused furtherabandonment of other surround-ing small businesses, Christensensays. Today, more than 100,000visitors come annually to tourwhat is now the Spam Museum

and to learn more about thehistory of the canned meat. Thetransformation of the emptyKmart into the Spam Museum

From Vacant to Vibrant

Communities Find New Uses for Big Boxes

This Save-A-Lot grocery store at 1804 Dixie Hwy. (18th Street) in Louisville, occupies whatas once a vacant big box. (Photo by John Nation)

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has also helped revitalize thesurrounding commercial district,Christensen says.

Mt. Sterling, Ky., transformedn old Wal-Mart into a compre-

hensive medical center.In Arlington, Texas, the pub-

lic school system has purchasedseveral Food Lion stores thatwent under with the idea totransform them into schools.

Christensen, currently teach-ing at Stanford University andthe California College of the

Arts, became interested in big-box reuse when her hometown

Wal-Mart moved in 1991 to abigger store on the other sideof Bardstown. Nelson County,where the original store waslocated, eventually bought theproperty, razed the Wal-Martnd built a courthouse on the

land. Since then, Wal-Mart hasmoved again to a Super Wal-Mart outside of town. A groupof investors purchased thesecond Wal-Mart and currentlyrents it to Peebles Depart-ment Store, which opened lastNovember.

Big-box retailers tend not to

locate in large urban marketssuch as Los Angeles, New YorkCity or Chicago due to spacelimitations for free-standingbuildings and parking lots,Christensen says. However,medium-size cities such asLouisville, and rural and subur-ban communities are markets

that have seen a proliferationof big-box retailers relocate tosuper-sized stores.

Louisville Mayor JerryAbramson created a strategic

approach to retail developmentafter conducting neighborhoodmeetings with constituents, land-owners, small business owners,developers and attorneys duringthe 2003 mayoral campaign.

As a result, the city estab-lished the Retail DevelopmentDivision to facilitate the devel-opment of retail businessesalong Louisvilles Metro com-mercial corridors.

Its goal is to identify under-utilized or vacant space andconvert those areas into vibrant

neighborhood assets throughthe Corridors of Opportunity inLouisville (COOL) program. Italso assists business associationsin Louisville with startup andexpansion issues, which canbring improvements and newbusinesses to commercial areas.

The program helps targeted

neighborhoods expand retailopportunities such as groceries,restaurants, dry cleaners andhardware stores. These typesof retail services are among thecore services that improve thequality of life in any neighbor-hood, providing convenientaccess to daily necessities,

Abramson says.Retail staff use their knowl-

edge of the Louisville marketto identify retail developmentsites, recruit retail services anddevelopers, provide demo-graphic and other informationfor site selection, facilitate theapproval process and introduce

financial and infrastructureincentives like gap financing,facade loans, retail forgivableloans and public improvements(streetscape, landscaping).

The Retail DevelopmentDivisions main focus is under-served neighborhoods in low-to moderate-income areas whereresidents feel they do not haveenough retail services andrestaurants, says John Fischer,assistant director.

In its first three years, theCOOL program has facilitatedmore than 150 projects. Suc-cessful examples include theredevelopment of BashfordManor Mall from an emptyenclosed mall to a power

center (a walkable collectionof big-box stores) and identifi-cation of a site for a new WicksPizza, an independently ownedretailer, in southwest JeffersonCounty. By the end of 2006,the new locations additionwill help double the companysannual revenue.

The Retail Development Divi-sion also provided a forgivableloan and a facade loan to inves-tors in two Save- -Lot storesthat opened in underservedLouisville neighborhoods.

In April 2004, Steve Kute andhis partners opened a Save-A-Loton 18th Street in a vacant big-

box store that became unstablewhen Kroger moved out severalyears ago. The city provideda facade loan and funding forconcrete and curb work.

The community has wel-comed the new grocery store,and the stores performance hasbeen outstanding, Kute says.

The second Save-A-Lotopened in 2005 in HazelwoodShopping Center, a stripcenter that received a completeoverhaul. The city provided a

$100,000 forgivable loan forbusiness assets. Neighborhoodresidents, especially the elderly,have responded favorably to thenew stores, Kute says.

The Retail DevelopmentDivisions role in guiding busi-nesses to empty big-box space isa pivotal one in providing retailservices to underserved neigh-borhoods. Fischer captured theessence of this division when hesaid, The most obvious locationis not always the most lucrative.

Julia Christensens research iscaptured in her ongoing project,How Communities are Reusingthe Big Box. Christensen usesdigital photography, digital videoand audio, along with live presen-tations, to publicize her findings.Find out more at her web site,www.bigboxreuse.com.

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By Eileen WolfingtonCommunity Affairs SpecialistFederal Reserve Bank of St. Louis

The world of entrepre-neurship is filled withtragic events and glori-

ous achievements with varyingdegrees of success and failure.Some people struggle through-

out their life toward smallbusiness success while othershit a successful venture almostimmediately. Immigrants,specially refugees, have much

higher success rates than oth-rs. Perhaps one of the reasons

is their strong will to survive.Often, employment is out of

the question due to language,ultural and religious barriers.

Consequently, they enter theworld of entrepreneurship, eventhough they may be unfamiliarwith the mechanics of starting

business in mainstream USA.According to a report fromthe Ewing Marion Kauffman

Foundation in Kansas City, Mo.,immigrants become entrepre-neurs at a rate 30 percent higherthan native-born Americans.

Profile

Immigrants tend to be risk-takers. They have a strongsense of self-reliance. If an

individual decides to start abusiness, family members usu-lly play a role in the business,ither as an employee or as a

partner. It is not unusual for

them to work 16 hours a day,including weekends.

Most, especially new arrivalsor those who have been hereless than two years, do not relyon financial institutions or gov-ernment programs to start theirfirst business. They do not

necessarily seek business devel-opment advice. If they need

financing, they rely on familymembers and friends who haveconfidence in their success.

Immigrants have a solid senseof autonomy and confidence.

They become very connectedto their community. Ownerswith successful startups becomemore venturesome, and theymay become involved in morebusiness transactions. Forexample, they may access a for-mal banking institution to buynew equipment, remodel theirbuilding or expand into a new

business. Sometimes, they mayeven consider purchasing com-mercial property. Unfortunately,there continues to be a discon-nect between this populationand the assistance programs thatare available to them.

Challenges

Some immigrants and refu-gees are simply not aware ofthe services available to themunless they are associated witha refugee resettlement agencyor other type of social serviceagency that offers small busi-ness development. And, theservice providers need to be

aware of the subtle discrimina-tion against certain groups andview it as a challenge for minor-ity entrepreneurs.

While some potential entre-preneurs held professionalpositions in their home countryor perhaps owned their ownbusinesses, it may be difficult for

them to join established busi-ness associations in this countrybecause of language and culturalbarriers. Traditional business

A Commentary:

Immigrant and Refugee Entrepreneurs

The International Institute

of St. Louis created a micro-

enterprise development pro-

ram in 1999. Known today

as Business Links, its success

is clear, says Matt Schindler,

program coordinator.

Immigrant entrepreneur-

ship has continued at a steady

pace, he says. Our businesses

are providing tax revenue, creat-

ing jobs, renovating buildingsand energizing communities.

The majority are service

businesses (e.g., cleaning),

but there are a fair amount of

restaurants, bakeries, grocery

stores and other retail busi-

nesses, he says. Most of the

entrepreneurs start out with

their business serving their owncommunity and then expand to

the greater American market.

Clients take advantage of

Business Links technical assis-

tance, such as help with licens-

ing, permits, business plans,

marketing, human resources,

legal issues, accounting issues

and taxes.Most of our clients use

self-finance through family and

A Place fororeign-Born

usiness Owners

to Find Help

continued on Page 4ontinued on Page 4

Morees and Luna Alyatim, owners of PageAuto Sales in St. Louis, received technicalassistance from the International Institutewhen they started their business. Throughthe institutes Business Links program, theyearne a out wrt ng a usness p an anoan pac agng.


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and service associations mightthink of creative ways to forgerelationships with immigrantbusinesses. It takes time, but ifan association familiarizes itselfwith a foreign language andculture, it increases comfort andtrust for both groups.

Immigrant entrepreneursmust be seen as fulfilling criticalroles in the economic and sociallives of the neighborhood. Acommunity can help by workingto eliminate change-resistant

ways. They can integrate thepolice force, zone a specialdistrict to showcase immigrantbusinesses and capitalize on thedemographic changes.

Additional barriers tousing support and credit pro-grams may include a lack ofeducation and overly complex

paperwork and documentation.New arrivals start with littleor no resources. Many immi-grants work hard to reach

financial stability. Their successpays off once they are able toopen their own business orinvest in real estate.

Neighborhood Impact

Immigrant small-scalebusinesses are often locatedin low-income, urban neigh-borhoods. So how haveimmigrant businesses madean impact in strengtheningthe sense of community?

These entrepreneurs supportthe vibrancy of older urban

areas through their presenceand investment in revitalizationprojects. Immigrants provideneeded goods and services,often for distinct ethnic niches.They strengthen the economicbase of the neighborhoodby rehabilitating houses andcommercial real estate. New

Americans also have a positiveimpact on the citys populationretention and add diversity tothe community.

riends, but there is a growing

number who seek commercialnancing, Schindler says. The

biggest challenge our clients face

is learning the legalities of doing

business in the United States.

Two major challenges are that

everything must be in writing and

hat owners need to understand

hat they are signing. In other

cultures, the oral word is equiva-

lent to a written document in the

nited States, he says.

hat effect do cultural issues

have on how his clients think

about business?

Our clients do have a ten-

dency toward creating family busi-

nesses, Schindler says. It wouldbe interesting to compare the rate

of immigrant family-owned busi-

nesses with those that exist in the

reater American community.

To date, the Business Links

program has helped:

start or expand about

70 businesses

create or retain more

than 240 jobs

create $24 million in client

revenue

77 percent of business

owners remain successful

after three years

leverage $289,000 in

microloans

For more information,

visit www.iistl.org/services/businessLinks.asp.

One person who has found a

niche helping immigrants and

refugees enter the business world

is Carl Trautmann. A business

mentor and teacher of entrepre-

neurship, Trautmann has been a

volunteer with the Service Corps

of Retired Executives (SCORE)

in St. Louis for more than 18

years. He has worked with the

International Institute of St. Louis

and the Hispanic Chamber of

Commerce of St. Louis to reach

out to immigrants.

Trautmann says one of his

most rewarding experiences wasworking with a bilingual Hispanic

immigrant who teamed up with

him to present a lecture course

in Spanish called How to Start

and Manage Your Own Small

Business. The early results

indicate that three times the

percentage of the courses stu-

dents actually begins a business

compared with other groups.

So far, high-dollar sales vol-

ume for successes are rare, but

the number of successes is very

good, Trautmann says.

Those interested in more

information can call Trautmann

at (636) 256-3331, send him

an e-mail at [email protected] or

visit www.stlscore.org.

oreign-Borncontinued from Page 3

ontinued from Page 3

Emina Rahmanovic, owner of Minas Beauty Salon in St. Louis, received technical assis-tance from the International Institutes Business Links program when she decided to star ther business.


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continued on Page 6

By Dena OwensCommunity Affairs SpecialistFederal Reserve Bank of St. Louis

Of all the problems facingvictims of HurricaneKatrina, finances are

mong the most serious, closebehind physical and emotional

well-being. As individuals tryto recover from the stormsdevastating blow, financial insti-tutions have been scramblingto help customers regain theirfinancial standing. Banks andother lenders find themselves inunusual circumstances, requir-ing a new way of thinking.

Resourceful banks havedesigned creative ways toresume business, incorporatingflexibility and customizationinto their vocabulary, engagingn recovery area nvestment

projects and forming allianceswith community partners.Examples of innovative pro-

rams abound.

Customized Programs

for Special Customers

Just before Hurricane Katrinastruck, one credit union erected

new branch in New Orleans.The branch was destroyed yetwas committed to offering hope

to its customers. Sponsored byEnterprise Corporation of theDelta based in Jackson, Miss.,Hope Credit Union lost its newlocation, but continues serving

evacuees through flexible bank-ng opt ons.

Determining their custom-ers needs, acquiring funds anddeveloping customized optionswere Hopes more pressing chal-lenges, says Richard Campbell,chief financial officer. Hopeinterviewed victims to identify

needs, looked to their socially

responsible investors (financialinstitutions, community andfaith-based groups, and indi-viduals) for funding and thentailored options to fit the needs.

Through these actions, Hopedeveloped an array of loanoptions and services. Loan

options include a six-month,interest-free housing recoveryloan that can be extended for12 or 24 months with lowinterest; a 90-day, interest-free

consumer loan; a low-interestauto loan with no paymentsfor 60 days; and loans adaptedfor small business recoveryand other needs. Servicesinclude opening no-fee check-ing accounts for one year. Fordetails, see www.hopecu.org.

In Memphis, the Bank of

Bartlett is helping hurricane

victims buy homes in the areathrough the New NeighborsHomeownership program.So far, 36 evacuees have beenapproved for mortgages, 10have closed or are in the pro-cess of closing and the remain-der are looking for homes.

The mortgage program,initiated by Federal Home LoanBank of Cincinnati, provides upto a $20,000 down-paymentgrant to victims who want to

purchase homes in Tennessee,Kentucky or Ohio on a first-come, first-served basis. Stormvictims must be registered withthe Federal Emergency Manage-ment Agency (FEMA). They arerequired to keep homes theypurchase for five years. Housevalues can be up to $175,000.

The Memphis and ShelbyCounty Community Services

Agency, an organization workingwith partners to provide servicesfor families, ran informationabout the program throughBank of Bartlett in a recentnewsletter. In the first few daysafter the newsletter was distrib-

uted, more than 100 peopleinquired about the program.

The initiative also is offered inMemphis through the Memphis

Area Teachers Credit Union.To review the program, visit

the Federal Home Loan Bankof Cincinnatis web site,www.fhlbcin.com.

Partnerships with Nonprofits

Banks in Arkansas, Mis-sissippi and Tennessee werechallenged to assist the tens ofthousands who fled into thesenearby areas for refuge. Inresponse, joint ventures haveformed on both corporate and

local levels to expand accessto aid. The alliances havegenerated monetary donations,housing stock, supplies, food

One of many homes destroyed by Hurricane Katrina. (Photos by Wayne Smith)

After the Storm

Banks Respond to Katrinas Punch



and water. Such partneringlessens the amount of govern-ment funding needed and mayqualify for Community Rein-vestment Act considerationduring bank examinations.

FEM estimates 30,000

to 50,000 evacuees fled intoArkansas, and banks withArkansas branches responded.

For example, Regions Bank,with about 1,600 locations in itsmultistate footprintincludingmany in the disaster area and in

Arkansasopened an account tocollect donations at all branches.

Regions partnered with theAmerican Red Cross and theSalvation Army to distribute aidto evacuees, who included bankassociates. The bank alsoformed local partnerships suchas in Little Rock, where Regionsbanks donated $10,000 to the

Water Shed Human Develop-

ment Agency. The nonprofitentity helped Little Rockevacuees get back on their feet.On a corporate level, the bankis considering a partnership

investment with three agenciesthat propose building thousandsof affordable housing unitsacross the Gulf area.

In Mississippi, FEMA estimatesthere are more than 200,000remaining evacuees in its met-ropolitan areas and an undeter-

mined number in rural areas.BankPlus, a state bank with 56branches throughout Mississippi,was directly impacted by thehurricane and partnered withthe Central Mississippi Chapterof the American Red Cross toensure that funds directly aidedMississippi residents.

Our goal was to help dis-placed Mississippians, saysDavid Dumeyer, spokesman forBankPlus. The bank accepteddonations at all branches andmatched $250,000 of the totalcollected. About $800,000has been collected, and thebank expects that figure to rise

through its continued efforts toraise funds.Memphis is among the top

five cities in the number ofevacuees it received. An esti-

Following hurricanes Katrina and

Rita, several hundred thousand

people were displaced from their

ulf Coast homes. Never havee seen the large-scale problems

aused by these natural disasters.

Many evacuees were relocated

to the St. Louis Feds Districtmost

notably, to Arkansas and parts of

Tennessee and Mississippi. Many

overnmental agencies and private

businesses are working with com-

munity organizations to provide

jobs, housing, education and finan-ial assistance to help the evacuees

rebuild their lives.

However, the news coverage of

the aftermath from New Orleans

forced the nation to look at the

isparate effect the flooding had

verwhelmingly on low-income and

minority individuals and families.

As the Metropolitan Policy

Program of The Brookings Institution

reported in its October 2005 study,

atrinas Window: Confronting Con-

entrated Poverty Across America,

reas of concentrated poverty

re not confined to New Orleans.

Despite improvements in the

1990s, nearly every major American

ity still contains a collection of

xtremely poor, racially segregated

neighborhoods.

f particular significance for ourDistrict is that out of the 50 largest

ities in the country, Louisville and

Memphis rank among the highest

ith percentages of populations

living in extreme-poverty neighbor-

hoodscensus tracts in which at

least 40 percent of the population

lives in families with incomes below

the federal poverty threshold. Louis-

ville ranked third and Memphis 12th,ccording to Appendix A in the study.

Authors of The Brookings Institu-

tion study, Alan Berube and Bruce

Katz, contend that the impacts of

oncentrated poverty go far beyond

those relevant in the context of a

natural disaster.Berube and Katz suggest that the

way forward is to create neighbor-

hoods of choice and connection.

Neighborhoods of hoice are com-

munities in which people of lower

incomes can find a place to start,

nd as their incomes rise, a place

to stay. They are also communities

to which people of higher incomes

an move, for their amenities, loca-tion and housing value. Neighbor-

hoods of onnection link families

to opportunity, wherever it may be

located. They offer connections to

good schools, and recognize that

the shifting geography of employ-

ment demands improved mobility

for workers to access good jobs.

Several policy options were

recommended by the authors to

put the nation back on track toward

lleviating concentrated poverty,

by supporting choice and opportu-

nity for lower-income residents in

istressed neighborhoods. Options

include: restoring funding to the

HOPE VI program; increasing support

for housing vouchers; piloting a

housing-to-school voucher

initiative; adopting President Bushs

proposed home ownership taxredit; targeting affordable housing

to low-poverty areas with the

ssistance of regional housing

orporations; and expanding the

EITC to help working families afford

housing in better neighborhoods.

To read the complete report, go to

www.brookings.edu/metro/pubs/

20051012_concentratedpoverty.pdf.

By Glenda Wilson

Community Affairs Officer

Federal Reserve Bank of St. Louis

isasters Put Poverty in Spotlight

ore estruct on n ou s ana.

continued from Page 5



mated 15,000 to 18,000 remain,ccording to the Louisiana

Recovery Authority. SunTrustBank, with more than 1,600branches nationally, includingbout 40 in Memphis, has no

locations on the Gulf Coast.Nevertheless, it delivered aorporate plan to aid Katrina

victims. The plan included localprojects: SunTrusts Mem-phis banks partnered with theMemphis Chamber Foundation.SunTrust donated $50,000 forthe foundations efforts to help

local churches and charitablegencies that requested assis-

tance for victims.

Challenges to Lenders, Customers

Federal financial regulat-ing agencies are encouragingbanks, thrifts and credit unionsto continue providing flexible

options to customers affectedby Hurricane Katrina. At thesame time, regulators stress bal-ncing investments and flexible

options with sound measures.In cities with high concen-

trations of evacuees, such asBaton Rouge, Little Rock andMemphis, lenders have attended

workshops conducted by theFederal Deposit Insurance Corp.(FDIC) to discuss their concernsnd possible solutions to prob-

lems they have encountered.Ideas that lenders would like tosee implemented include:

development of loan poolsto minimize risks and

increase loan capacity atsmaller banks;

definitions by regulators offorbearance vs.forgiveness

and descriptions of accept-able forms of identificationfor accessing or openingaccounts;

coordinated disaster sce-

nario exercises involvingkey agencies;

development of a disasterarea investment projects list;

development of an alterna-tive funding resources list,including national andregional intermediaries, such

as NeighborWorks America,the Local Initiatives SupportCorp. and Enterprise Com-munity Partners;

development of land truststo preserve affordablehousing options and landbanking opportunities sodevelopers can hold land

for future development;

acquisition of flood mapsfrom FEMA when localplanning offices are inoper-able and of building codesfrom city or county websites, if available, as codesare updated for underwrit-ing requirements;

utilization by lenders ofthe new SBA Gulf Oppor-tunity Pilot Loan program,Go Loans, which offersa streamlined loan processfor evacuees seeking smallbusiness recovery (www.sba.gov/financing/goloans);

a list of Katrina-relatedweb sites with updatedresources and information.

Katrina Information and ResourcesLimited list: Search under hurricane and/or Katrina for specific information.)

Federal Services and Assistanceitizen and Immigration Services

www.uscis.gov

Department of Agriculture

www.usda.gov

Department of Health and Human

Services

www.os.dhhs.gov

Department of Housing and Urban

Development

www.hud.gov

Department of Labor

www.dol.gov

Department of Transportation

www.dot.gov

Department of Treasury

www.ustreas.gov

Federal Emergency Management Agency

www.fema.gov

Federal Financial Institutions Examina-

tions Council

www.ffiec.gov

Federal government information web site

www.firstgov.gov

Internal Revenue Servicewww.irs.gov

Medicare and Medicaid Services

www.cms.hhs.gov

Small Business Administration

www.sba.gov

Social Security Administration

www.socialsecurity.gov

Financial Information

Office of the Comptroller of the Currency

www.occ.treas.gov

Office of Thrift Supervision

www.ots.treas.gov

National Credit Union Administration

www.ncua.gov

SRI informational web site

www.socialfunds.com

General Hurricane

Relief ServicesAmerican Red Cross

www.redcross.orgArkansas Hurricane Relief

www.arkansas.gov/dfa/dfa_

emergency.html

Enterprise Community Partners

www.enterprisecommunity.org

Enterprise Corporation of the Delta

www.ecd.org

Habitat for Humanity

www.habitat.org

Local Initiatives Support Corp.

www.lisc.orgLouisana Recovery Authority

www.lra.louisiana.gov

Hurricane Relief Organizations List

www.give.org

Mississippi Emergency Management Agency

www.msema.org

NeighborWorks America

www.nw.org

Salvation Army

www.salvationarmyusa.org



By Thomas A. GarrettResearch OfficerFederal Reserve Bank of St. Louis

Personal bankruptcies in theUnited States have had adynamic history over the

past 100 years. Bankruptcyfilings in the first half of the

20th century averaged 0.15per 1,000 people and grew atn average annual rate of 2.4

percent. Bankruptcies began toincrease during the 1960s andhave grown dramatically since1980. Between 1980 and 2004,bankruptcies grew at an annualverage rate of 7.6 percent a year.

As of 2004, the filing rate was.3 per 1,000 people, more than

four times the 1980 rate andnearly 80 times the 1920 rate.1

These statistics, however,disguise the fact that personalbankruptcy filings are not equalcross the country. For exam-

ple, at the state level, Tennessee

had the highest rate of personalbankruptcy filings in the nationin 2004, with more than 10filings per 1,000 people (nearlytwice the U.S. rate) whereasMassachusetts ranked last with2.8 filings per 1,000 people.States in the Eighth FederalReserve District had an aver-ge filing rate of 7.7 per 1,000

people in 2004, which is greaterthan the U.S. average, but therowth in bankruptcy filings in

Eighth District states between

1980 and 2004 averaged 7.2percent a year, slightly belowthe U.S. average growth of 7.6percent a year.2

The typical person who filesfor bankruptcy is a blue col-lar, high school graduate whoheads a lower middle-incomeclass household and who makes

heavy use of credit.3 Researchhas found that the primary causeof personal bankruptcy is a high

level of consumer debt oftencoupled with an unexpectedinsolvency event, such as divorce,

job loss, death of a spouse or amajor medical expense not cov-ered by insurance.4

Although negative incomeshocks (including recessions)are the predominant cause ofbankruptcy filings, variouseconomic, legal and institutionalfactors over the past 100 years

are likely contributors to therise in personal bankruptcy fil-ings. These factorssuch as theincreased availability of credit,lower costs to file for bank-ruptcy and decreased consumersavingsdo not cause mostbankruptcies, but have madeindividuals more susceptible to

negative income shocks, thusincreasing their chance of filingfor bankruptcy.

Economic Factors

Personal bankruptcy filingsper 1,000 people in the UnitedStates from 1900 to 2004 areshown in the figure. Bank-ruptcy filings were relatively lowand steady from about 1900 to1920. Filings increased slightlyduring the 1920s and 1930s,both as a result of increasedeconomic activity and theGreat Depression. Bankruptcy

may increase during periodsof economic growth as peoplebecome more confident in thefuture and are willing to takeon a greater debt burden andfinance their increasing obliga-tions based on current income.6

However, as the supply of creditbegins to tighten and interest

rates and loan payments beginto rise, the financial strain canbecome quite large.

World War II saw a markeddrop in filings, likely the resultof increased employmentin support of the war effort.Filings continued to rise at asomewhat greater rate during

the 1960s. Two reasons for thisrise were an increase in eco-nomic activity following World

War II and the rise in federaland state transfer programs(i.e., Medicare, welfare and dis-ability programs) that createdan incentive for individuals tobe less financially responsible

given a government safety net.7

A marked decrease in con-sumer saving and an increasein consumer debt correspondwith the dramatic change inbankruptcy filings since the1980s. For example, totalsaving as a percent of incomeaveraged nearly 10 percentin 1980 compared with 0.1percent in the second quarterof 2005. These figures includetraditional retirement accountslike 401(k)s.

100 Years of BankruptcyWhy More Americans Than Ever Are Filing

0

1

2

3

4

5

6

1 900 1910 1920 19 30 1940 1950 1960 1970 1 980 1990 2000

ersonal bankruptcy filing rates varied greatly throughout the 20th century. The record

evel we see today is a result of a marked increase beginning roughly 25 years ago.

U.S. Personal Bankruptcies 1900-2004(per 1,000 population)



Although rising property val-ues have likely led to a portfolioshift from traditional savingsto investing in ones home, thislatter option offers much lessdiversity, and thus higher risk,than traditional portfolio sav-ings like 401(k)s.

Consumer debt as a percentof income increased from about15 percent of personal incomein 1980 to more than 20 per-ent of income in the second

quarter of 2005. These statis-tics, combined with the saving

statistics, reveal that Americanshave been saving less andspending more (through debt)over the past 25 years. Both ofthese facts have made individu-ls more susceptible to income

shocks and thus more likely tofile for bankruptcy.

Legal and Institutional FactorsBankruptcy law during the

first part of the 20th century wasstablished by the 1898 Bank-

ruptcy Act, the first permanentbankruptcy law in the UnitedStates.8 Although this lawdealt primarily with corporatebankruptcies, the legal provi-

sions for personal bankruptcies,which were arguably weak, wereof little concern because of thextremely low rate of personal

bankruptcies during the firstpart of the century.

The rise in personal bank-ruptcies in the 1920s and1930s, along with growingorruption and legal challenges

regarding corporate bank-ruptcy filings during the GreatDepression, prompted passageof the Chandler Act in 1938.

The Chandler Act created ahost of new options for thosefiling for personal bankruptcy,such as alternatives to completeliquidation (e.g., a repaymentplan) and a greater ability to filevoluntary petitions.

The increased availability ofconsumer credit, especially inthe form of credit cards, hasoccurred since the 1950s.9

Although proprietary chargecards were available in theearly 1900s, the use of thesecards was traditionally limited

to a single store. Also, manyof these cards did not have thefeature of revolving credit.10

The first general purpose creditcard (BankAmericard, nowknown as VISA) was introducedin 1966. In 1970, only 16 per-cent of households had a creditcard compared with over 70

percent of households in 2000.The late 1970s saw numerous

legal changes that likely had animpact on bankruptcy filings.First, the Bankruptcy Reform

Act of 1978 revamped bank-ruptcy practices set forth underthe 1898 act and the Chandler

Act. Although the act was

passed in response to the rise inpersonal bankruptcies duringthe 1960s, many provisions inthe act made it easier for bothbusinesses and individuals tofile for bankruptcy.

A second legal change inthe late 1970s was a SupremeCourt ruling in 1978 calledthe Marquette decision.11

Prior to this time, many stateshad usury ceilings on creditcard interest rates. The highinflation and interest rates of

the late 1970s significantlyreduced the earnings of creditcard companies. As a result,credit card companies in rela-tively high-interest-rate statesattempted to solicit their creditcards to people living in lower-interest-rate states, but chargethe higher rate. Controversyover this practice culminated

in the Supreme Court, whichruled that lenders in states withhigh-interest-rate ceilings couldexport those rates to consum-ers residing in states with morerestrictive interest rate ceilings.The result of this ruling wasa massive expansion in creditcard availability and a reduction

ENDNOTES

1 Bankruptcy data are from the Admin-

istrative Office of the U.S. Courts.

Data sources are from the Adminis-

trative Office of the U.S. Courts andGarrett, Thomas A. and Ott, Lesli S.

Up, Up and Away: PersonalBankruptcies Soar. The RegionalEconomist, October 2005, pp. 10-11.

Shephard, Lawrence. Accountingfor the Rise in Consumer Bank-

ruptcy Rates in the United States: APreliminary Analysis of Aggregate

Data (1945-1981). Journal ofConsumer Affairs, Winter 1984, vol.18, pp. 213-30.

4 Gropp, Reint; Scholz, John K.;and White, Michelle J. Personal

Bankruptcy and Credit Supplyand Demand. uarterly Journal ofEconomics, February 1997, vol. 112,pp. 217-51.

For a further discussion of personal

bankruptcies, see Marcuss, Maimie.A Look at Household Bankrupt-

cies. ommunities and Banking,Federal Reserve Bank of Boston,

Spring 2004, pp. 15-20 and Hansen,Bradley and Hansen, Mary. TheTransformation of Bankruptcy in

the United States. Working Paper,University of Mary Washington.

Ekstein, Otto and Sinai, Alan. TheMechanisms of the Business Cyclein the Postwar Era. The AmericanBusiness Cycle. Chicago: Universityof Chicago Press, 1986,: pp. 39-105

Consumer Bankruptcy: Causes

and Implications. Visa ConsumerBankruptcy Reports, Visa USA, Inc.,

July 1996.

Visit http://eh.net/encyclopedia/

article/hansen.bankruptcy.law.us foran overview of all bankruptcy legisla-

tion in the United States since 1789.

Sienkiewicz, Stan. Credit Cards

and Payment Efficiency. Discus-sion Paper, Federal Reserve Bank ofPhiladelphia, August 2001.

10 Revolving credit is an agreement tolend a specific amount to a borrower

and to allow that amount to be bor-rowed again once it has been repaid.

11 The actual case is Marquette

National Bank of Minneapolis v.First of Omaha Service Corp. For a

detailed discussion, see Ellis, Diane.The Effect of Consumer Interest

Rate Deregulation on Credit CardVolumes, Charge-Offs, and thePersonal Bankruptcy Rate. FDIC,

Bank Trends, March 1998.

12 See www.stlouisfed.org/community/

about_cra.html for a discussion ofthe Community Reinvestment Act.

13 See A Policy in Lampmans Tradi-tion: The Community Reinvestment

Act. Remarks by Governor Edward

M. Gramlich, Federal ReserveBoard, June 16, 1999. Available at

www.federalreserve.gov/BoardDocs/speeches/1999/19990616.htm.

14 Bankruptcy Filers Rush to Meet

Deadline. USA Today, Oct. 14,2005, p. B.1.

continued on Page 11


10/120 A N D C O M M U N I T I E SL I N K I N G L E N D E R S

a a

St. Louis encompasses all of Arkansas and parts of Illinois,

Indiana, Kentucky, Mississippi, Missouri and Tennessee.

SPANNING THE REGIONNew Tax Credit Program

Open to Tennessee Lenders

The state of Tennessee hasdeveloped a new program thatoffers flexibility to lenders seek-ing tax credits.

The Community Invest-ment Tax Credit is an incentivethat gives lenders tax creditsfor loans and grants to hous-

ing organizations involved in avariety of eligible activities. Theloans and grants can supportprograms that create afford-ble housing, help Tennesseans

obtain affordable housing mort-ages or help nonprofit agen-ies finance affordable housing

projects or affordable housing

ctivities, such as certifiedhome-buyer education services.

The program is administeredby the Tennessee HousingDevelopment Agency (THDA)nd the Department of Revenue.For more information about

THDA or the tax credit pro-ram, call (615) 741-2400 or

visit the THDA web site atwww.state.tn.us/thda.

Missouri DNR Offers

Environmental Assessments

Local governments and non-profit organizations in Missourionsidering the purchase of

property that may have envi-ronmental problems can gethelp from the state.

The Missouri Departmentof Natural Resources providesfree environmental assessments

performed byenvironmentalengineering firmsunder a state contract.

Applicants do not have to ownthe property or intend to pur-chase it.

Potential contaminants includelead-based paint, asbestos, petro-leum and hazardous materials,

such as chemicals, pesticides andherbicides.

For information, contact Chris-tine OKeefe at (573) 751-7538,[email protected]; or

Jim Gilstrap at (573) 522-8139,[email protected]

Identity Theft Victims

Can Call Illinois HotlineIdentity theft victims in

Illinois who are navigating theirway through the credit repairprocess can call a new state hot-line for help. The hotline num-ber is 1-866-999-5630. Thosewho are hearing-impaired cancall 1-877-844-5461 (TTY).

Callers will receive one-on-oneassistance, including adviceon how to work with policeand creditors.

For more information on theIllinois Identity Theft Hotline,visit the Illinois attorney gener-als web site at www.illinoisattorneygeneral.gov/consumers.

Arkansas Nonprofit

Releases State Scorecard

The Southern Good Faith Fundrecently released theArkansas

Assets and Opportunity Scorecard2005. The report examinesoutcomes, measures and publicpolicies associated with asset-building opportunities.

The Scorecard is organizedinto the categories of education,business development, home

ownership and financial security.The report makes specific

recommendations for Arkansaspolicies affecting asset develop-ment. It includes a regionalcomparison of Arkansas out-comes and policies with sixneighboring states: Louisiana,Mississippi, Oklahoma, Ten-

nessee, Missouri and Texas.In addition, Arkansas nationalranking is listed for each ofthe categories highlighted inthe report.

A complete listing of thedata can be found at www.southerngoodfaithfund.org/pub/pub_policy.html. To

obtain a copy of the report orto learn more about the recom-mendations, contact Matt Priceat (501) 372-1141.

$300,000 in Tax Credits

Awarded to St. Louis Program

Great Rivers CommunityReinvestment, a subsidiaryorganization of the JustinePetersen Housing and Rein-vestment Corp. in St. Louis,has received $300,000 in statetax credits from the Missouri

Department of EconomicDevelopment.

The tax credits were issuedthrough the states FamilyDevelopment Account Program,a matched-savings program inwhich money leveraged by statetax credits is used to match

money saved by individuals,up to a three-to-one match.The 50 percent state tax creditsare expected to attract up to$600,000 in donations during a12-month period.

Great Rivers CommunityReinvestment plans to helphundreds of low-income indi-

viduals and families in theSt. Louis area save moneytoward a home, home repairs,educational advancement or theoperation of a small business.The organization will also offereconomic education classes andhelp participants improve theircredit scores.

Banks interested in pur-chasing the tax credits shouldcontact Sheri Flanigan-Vazquezat Justine Petersen: (314) 664-5051, ext. 117, or sflanigan@

justinepetersen.org.


11/12


12/12

L I N K I N G L E N D E R S A N D C O M M U N I T I E S2

NCCA: A New Name,A New Mission

he 20-year-old National Com-

munity Capital Association became

pportunity Finance Network at the

beginning of 2006.

he name change reflects a major

hift in the organizations focus, says

president and chief executive officer

Mark Pinsky. A network of 167 finan-

ial institutions, Opportunity Finance

Network will move beyond traditional

ommunity development strategies

based in government funding and

into a commitment to attract private

apital to oppor tunity markets.

he organizations new strategies

include a multi-billion dollar Fair

Mortgage strategy to combat preda-

tory lending and plans for $100 mil-

lion or more in financing to preserve

ffordable housing for low- and mod-rate-income home owners residing in

manufactured home parks.

For more information, visit

ww.opportunityfinance.net.

Fed Raises Reg C

Exemption Thresholdhe Federal Reserve Board

recently published its annual notice

f the asset-size exemption thresholdor depository institutions under

Regulation C, which implements the

Home Mortgage Disclosure Act

(HMDA). The exemption will increase

to $35 million, based on the annual

percentage change in the Consumer

Price Index for Urban Wage Earners

nd Clerical Workers for the 12-month

period ending November 2005. As a

result, depository institutions with

ssets of $35 million or less as of

Dec. 31, 2005, are exempt from data

ollection in 2006. The adjustment

as effective Jan. 1, 2006.

Have you

HEARDAnna McDonald Rentschlerof Mexico, Mo., is one of 10new members appointed to the

Federal Reserve Boards Con-sumer Advisory Council.

The council, which meetsthree times a year in Washing-ton, D.C., advises the Board onits responsibilities under theConsumer Credit Protection Actnd on other matters relating toonsumer financial services.

Rentschler is the newlyappointed Bank Secrecy Actand anti-money laundering

officer for Central Bancompanyin Jefferson City, Mo. Her divi-sion will consolidate the banksecrecy and anti-money laun-dering functions of 13 banks.Until recently, she served asvice president and complianceofficer for First National Bankof Audrain County, where she

was responsiblefor federal andstate compli-

ance super-vision andconductingoversight for allmortgage loanactivity and sales in the second-ary mortgage market.

Missourian Named to Fed Council

Anna McDonaldRentschler

David A. Sapenaro has beennamed first vice president andhief operating officer of the Fed-ral Reserve Bank of St. Louis.Sapenaro joined the St. Louis

Fed in 1995, following 10 yearswith the Federal Reserve Bankof Kansas City, where he held avariety of managerial and offi-ial positions in the Operations

Division. In St. Louis, he mostrecently managed and led vari-ous Federal Reserve operations

and initiatives in support of theU.S. Treasury.

Customer service is one ofSapenaros top priorities.

Whether you interact withthe Federal Reserve Bank ofSt. Louis through our publicprograms, our financial servicesor our bank examiners, you cancount on receiving exceptionalservice from this organization,Sapenaro says. When you do,wed like to hear from you. And

if you dont,we definitelywant to hearfrom you.

Sapenaro suc-ceeds LeGrandeRives, whoretired in January.

David Sapenaro can be reachedat (314) 444-8721.

St. Louis Fed Appoints First Vice President

avid Sapenaro

Federal regulators announced inMarch final guidance implementinghanges to Community Reinvestmentct (CRA) regulations.Among other things, the changes

larify that regulators will considerbank activities in designated disasterreas for CRA credit. Bank loans,

investments and services that help

ttract new, or retain existing, busi-nesses or residents to a designatedisaster area will receive CRA com-

munity development consideration

for a 36-month period after designa-tion of the area. This time period canbe extended in unusual cases, andthe agencies indicated they plan tosubstantially extend the time periodsin the Gulf Coast areas hit by hur-ricanes Rita and Katrina.

The changes also address theavailability of CRA community

development consideration for bankactivities that revitalize or stabilizeunderserved or distressed middle-income rural areas. The other major

issue it addresses is implementationof the new community developmenttest for banks with assets between$250 million and $1 billion.

The guidance is being issued bythe Board of Governors of the FederalReserve System, the Federal DepositInsurance Corp. and the Office ofthe Comptroller of the Currency. The

guidance implements changes to theagencies CRA regulations that tookeffect on Sept. 1, 2005.

Federal Regulators Finalize CRA Changes

Bridges - Spring 2006

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