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Published: Thursday, 6/18/2009

Fed chief touts need to protect banks for poor


WASHINGTON - Federal Reserve Chairman Ben Bernanke yesterday urged financial institutions that specialize in community development and banking to the poor to take steps to ensure they emerge from the financial crisis stronger.

The Fed chief, in prepared remarks to a financial literacy conference here, spoke hours before President Obama unveiled a reworked plan of financial regulations intended to better safeguard against the housing, credit, and financial debacles that have fueled the longest U.S. recession since World War II.

Nationwide, there are more than 1,000 certified community development financial institutions that hold $25 billion in assets. They may be banks, credit unions, nonbank lenders, or venture funds, and they strive to provide affordable financial services to people and communities who traditionally lack them.

Mr. Bernanke urged the community development institutions to take steps "to correct weaknesses that have emerged" in their business model, suggesting they broaden and diversify their funding bases.

"Economic recovery, like economic development, is a bottom-up as well as a top-down process," he said.

Although many community development institutions have continued to hold up "relatively well" despite the financial crisis, rates of delinquencies and defaults on loans have risen as economic conditions have worsened, Mr. Bernanke said.

That often is related to economic distress in the community as once-thriving businesses are forced to shut their doors, affordable rental housing complexes struggle to make payments as tenants lose jobs, and after-school youth centers can't repay loans because their donor base has shrunk.

"As the effects of the financial crisis and the resulting economic downturn have spread, there has been increased focus on preserving the gains made in low and moderate-income communities over recent decades," Mr. Bernanke said.

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