Equitable Resilience Program
By Korn Lapprathana, Laura Mediorreal, Nazanin Soltan, Brandee Barker
Executive Summary
When beginning to explore the possibilities for post-disaster finance reform, we turned to several restaurant owners impacted by the pandemic. Their establishments are meaningful in our lives–on our Stanford campus, on our home town streets, where we go to meet a friend, for a business meeting or out to celebrate a special occasion. They serve the food that nourish our bodies, but more importantly, become part of our association to location and lasting memories. Restaurants, and all small businesses, anchor our communities.
The Problem
Of the business owners we spoke to, all were forced to close and remain struggling to survive on offering take out and with a minimal staff. Yet they stepped up to serve the health care workers and food insecure in our area. The Paycheck Protection Program loan was critical, but the application process was reported to be frustrating and unpredictable. More importantly, we found “gross inequities” across the system with banks favoring their biggest customers, no transparency throughout the process, and information being unavailable and inconsistent.
We set out to explore how we might help Governor Newsom and the State of California to again be a leader in crisis and set a plan forward that offers equity in resilience both now and going forward, and independent of the federal system.
For comparison, we first researched the Community Reinvestment Act (CRA), a federal program passed by Congress in 1977 to broadly address inequity in bank lending to high-income neighborhoods and low- and middle-income (LMI) neighborhoods. Through incentives and a rating system, the CRA gets banks to take actions such as opening more branches in LMI areas, and making more loans to people in these areas. This program helped inform the possibilities that might be applied by the state to better support the local economies to rise again after a crisis.
Our Solution
Our proposal is called the Equitable Resilience Program (ERP), a CRA-like system at the state level which will address the inequity in financial access during crises between big businesses and small businesses. Working with and leveraging the financial power of the State of California, the ERP will address this by getting banks to take actions to help small businesses, to make sure that ALL businesses owners get a chance to sustain their business through difficult times and emerge more resilient than before.
Conclusion
In our initial design of the ERP, there are THREE sets of actions we want the banks to take:
First, the ERP will host a centralized web portal that will be the single source of truth for small businesses to turn to on information for emergency loans and grants during crises.
Second, the portal will create community forums for business owners to post questions related to financial services, and get answers from financial professionals from banks who will also have access to these forums.
Third, we want banks to have a proportion of their personnel dedicated to serving small business owners during crises, for example assisting customers with navigating a process like applying for the PPP loan.
Furthermore, like the CRA, the ERP will incentivize banks to take these actions by giving them an ERP rating. If the banks take these actions, they get a higher ERP rating. And a higher ERP rating means that they get more favorable treatment in the California state government’s financial services procurement process, such as when they’re trying to become the provider for deposit services, payroll services, or bond underwriting services for the state government. The ERP rating could even impact their CRA rating, because the California government could provide information to the Federal Reserve on how much each bank is doing to help segments of the business community that have been traditionally underserved by the financial system.
The overall impact of the ERP will be to get banks to take actions that will reduce the gap in crisis resilience between smaller and larger businesses in the state of California. The hope will be that our small businesses and restaurants will be fairly supported through a crisis and return—stronger and more resilient than ever—as the heart and anchor of our local communities.
On June 3rd, 2020 the Redesigning Finance students presented their work via Zoom to a panel of experts working in the finance sector.
ADDITIONAL CONTENT
