09 Apr 2009 Making Green Loans
On our sister blog, the Free Enterpriser, Tom Borelli notes a new start-up among the phenomenon of businesses set up with a social purpose:
A story published in the New York Times describes the growth of green banks. E3bank recently received approval from the Pennsylvania Department of Banking and if it gets the final ok from the Federal Deposit Insurance Corp and by the commonwealth it will be ready for business.E3bank will incorporate the principles of corporate social responsibility (CSR) to its lending practices in an effort to stimulate the green economy.
“Instead of following the industry standard — basing loans on a borrower’s ability to pay and the up-front costs of the building — e3bank officers will be authorized to modify debt-to-income and loan-to-value proposals. Financial products would be tailored to account for the up-front costs of more expensive green projects but also factor in cost savings from lower energy consumption that would be netted over the course of the loan.”
By lowering lending standards for a social purpose the green banks are repeating the mistake made by the banking industry in pushing mortgages on low income households. Social purpose should not be the criteria for lending money — only the ability of the individual to repay the loan.
I wonder if the FDIC charges banks more for deposit insurance if they use criteria other than/in addition to the ability to repay when making loans. Since taxpayers are ultimately behind the FDIC, I hope so.
Note: Mr. Frank J. Baldassarre, Jr., the president and CEO of e3bank, has sent us a reply to this post. Readers can find it here.