When depositors put their money in the Designated Investment Fund (DIF) at Park State Bank in Duluth, they receive the same benefits as any other depositor-the same savings rates, FDIC insurance and other amenities that may be attached to the account. But depositors are also doing something different: They are ensuring that their deposits are loaned to projects that a local committee deems beneficial to the community.
Park State Bank is one of just a few banks in the nation with such a program, according to Paul Borrmann, lead organizer for Broadbased Organizing A Newer Duluth (BOND), a community group instrumental in developing the DIF.
The purpose of the fund, which was initiated last year and has exceeded over $1 million in deposits, is to strengthen the local economy by designating projects that have a positive impact on the community and environment, and to remind depositors that they have a role to play, according to Borrmann. "The concept becomes that the bank's borrowers and depositors are related," Borrmann says.
Sixteen volunteers—representing business, non-profits and higher education—make up the Community Advisory Committee. The committee meets regularly to advise the bank of possible lending opportunities and to discuss whether certain loans meet their criteria. The committee looks for projects that, among other things, may provide a new model of jobs, training or educational benefits for low-income citizens, or may provide child care or adult daycare, low-income housing or support sustainable agriculture.
However, the loans must also meet the bank's credit criteria, Borrmann stresses. Park State is not expected to consider loans that don't meet the bank's standards. "But a key component is the fact that the bank is agreeing to do things that are not typically done," Borrmann says. "This has got to be more than just a marketing gimmick or a CRA ploy," he says, referring to the Community Reinvestment Act, the law regulating banks' community investment, "or a way to get activists off their back."
The president of Park State Bank, Dale Lewis, agrees with that assessment. She sees the DIF as a way for the bank to reaffirm its commitment to community development. "This fits with our mission," she says of the $17 million asset bank. "This is a way of addressing certain needs in the community."
The bank obviously won't make bad loans, Lewis says; indeed, in some cases the bank would have made certain loans without the involvement of the DIF-a good loan is a good loan, regardless of the DIF. But there are cases where the bank would probably not have heard of a particular loan opportunity without the input of the advisory committee, Lewis says. "This is networking as much as anything."
The city of Duluth has deposited $200,000 in the DIF and local awareness of the project has grown, Lewis says. Park State has loaned about half of the DIF's $1 million, she says, and the bank expects the fund to grow.
Borrmann hopes other Duluth banks step in to join Park State, and that the idea spreads to other communities. "I think this is going to be something that other banks will look at," he says. "This can be a major development in banking."
—David Fettig
