Public Meeting Regarding Citicorp and Travelers Group
Friday, June 26, 1998
Transcript of Panel Seventeen
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18 With that, I would like to begin this
19 morning's proceedings. The first panel, Number
20 Seventeen in the agenda is made up of Marie
21 Nahikian, George McDonald, Freddy Espaillat and
22 Julie Colon. If those folks would come
23 forward.
24 Ms. Nahikian, is that how you say
25 your name?
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2 MS. NAHIKIAN: That's right.
3 MR. LONEY: Will you begin for us,
4 please.
5 MS. NAHIKIAN: Certainly. I do have
6 copies, which I can either give you now.
7 MR. LONEY: You can leave it at the
8 table out front.
9 MS. NAHIKIAN: The Queens County
10 Overall Economic Development Corporation, which
11 was created in 1978, has a central focus --
12 MR. LONEY: Excuse me. Could you
13 move the mike closer to you, please.
14 MS. NAHIKIAN: The Queens County
15 Economic Development Corporation has a central
16 focus to increase economic opportunity for the
17 residents of Queens County, and this really
18 requires Queens County to maintain multiple
19 roles in the economic life of an area that is
20 probably the nation's most diverse area in
21 population and has a population equal in size
22 to the fourth largest city in the United
23 States.
24 Our mission could not be met without
25 close working relationships with sources of
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2 national and international capital. We work
3 with over 75 financial institutions, and how we
4 work with these institutions is probably best
5 summed up in one word, and that is that we
6 sell. We sell Queens neighborhoods, locations,
7 businesses, residents as essentially good
8 investments. And the interest in our sales
9 pitch, so to speak, varies, but one fact is
10 critical, and that is that the financial's
11 institutions listen much more closely since the
12 passage and the strengthening of the Community
13 Reinvestment Act.
14 The matter before the Board this
15 morning, the acquisition of Citicorp by
16 Travelers, speaks somewhat to our concerns and
17 our hope. Citicorp and its affiliates, such as
18 Citibank, has worked closely with Queens County
19 for the past ten years. We've been fortunate
20 in having the direct participation of Citibank
21 in much of our work, and this work has taken
22 the form of Citibank employees who were civic
23 leaders, provide leadership within the county
24 itself, who live in Queens County, but also
25 more directly in lending to small business
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2 clients. As a financial supporter, we have
3 enjoyed Citibank philanthropic support and
4 providing technical assistance, particularly
5 around issues of how to structure real estate
6 investment.
7 The question that is posed for this
8 acquisition is harder. After listening to
9 community developers, which Citibank I think
10 does very well, the question is, would there be
11 action? And action is another way of defining
12 the purpose of this public hearing. What
13 actions had been taken or are proposed to be
14 taken to meet the credit needs of our
15 community?
16 We have very little experience with
17 the Travelers Group. The issues of the
18 availability of insurance products and the
19 cost/risk analysis that seems to always produce
20 higher premiums in a place like Queens County
21 is well-known. One hopeful note, however, we
22 believe that the Travelers Group can learn from
23 Citicorp: Investing in our communities is a
24 good business and profit does not need to come
25 from higher costs charged for a perception of
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2 higher risk.
3 More information is needed about the
4 potential for a bank holding company to conduct
5 nonbanking activities. If access to affordable
6 products is available as a result of this
7 relationship, these nonbanking activities could
8 produce significant benefits to our community
9 For example: Investment health and retirement
10 products for nonprofits and specific groups of
11 individuals; local recruitment for training and
12 employment opportunities.
13 The other part of the question is,
14 will there be a strategy to invest the $6
15 billion increased commitment by Citicorp in
16 community development? So far Citibank's
17 participation has been significant. The
18 commitment to increase lending and support for
19 community economic development from the current
20 level of $136 million to $6 billion over the
21 next ten years should mean that the impact will
22 be even larger. The commitment is a major
23 challenge, and we have encouraged that
24 implementation strategies with the community
25 development partners must begin immediately.
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2 In order to move $6 billion into
3 community development over the next ten years,
4 I think Citicorp has realized that it requires
5 increased resources, staff and support, to move
6 those kinds of commitments.
7 We urge the strategy to include the
8 use of community development intermediary and
9 technical assistance providers which have a
10 knowledge of local communities. It is the only
11 way we'll ever seen the resources in Maspeth,
12 in Cambria Heights or on Sutphin Boulevard,
13 which I should just footnote has already been
14 supported by Citicorp.
15 I think it is important, one final
16 concept, that there be created an investor
17 environment. Over the last 15 years, as you
18 all well know, we have seen a major change in
19 how affordable housing gets financed in this
20 country. In New York City alone, thousands of
21 units have been created. The reason why is
22 because there was an economic concept of
23 creating value in the marketplace, where none
24 previously existed by coupling investment with
25 tax credits is a strategic way of rebuilding
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2 and revitalizing communities.
3 This has allowed investors to analyze
4 a different way of analyzing return and has
5 mitigated the traditional discussion of
6 underwriting risk. I can remember trying to
7 structure some of the very early tax credit
8 deals with some of Fannie Mae's very early
9 investments with banks in Philadelphia, and we
10 weren't even sure what those investments should
11 look like, but the same economic concept needs
12 to be used.
13 The same economic concept must be
14 used in economic development. Small business
15 owners, and particularly minority and
16 women-owners rarely have the luxury of
17 considering an investment. Most financial
18 institutions cannot mitigate the risk of
19 lending to startups or when an operation needs
20 to grow and expand.
21 So hopefully the combination of the
22 Travelers and Citicorp, with Travelers' history
23 in investment, will bring about a different
24 kind of risk analysis that includes
25 nontraditional equity, such as labor, family
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2 cosigners or intellectual property, developing
3 a secondary market for small business loans,
4 using a pooled risk concept, and, finally, the
5 possibility of providing leadership for
6 federal, state and local tax credits, and to
7 create value in small minority-owned businesses
8 in our neighborhoods will make a huge
9 difference.
10 Is the $6 billion commitment enough?
11 The answer is no. Is it significant? Yes.
12 The only correlation I can draw is that Queens
13 County is a 60-percent owner of a shopping
14 center, one of the first built in the Hollis
15 neighborhood in Queens. We've received about
16 $200,000 in income from the ownership, net
17 income from the ownership of this shopping
18 center as a limited partner.
19 Recently the corporation made a
20 commitment to invest $25,000 in the Queens
21 Access Neighborhood Fund with two premises.
22 One, it can be used to be invested or loaned as
23 risk and, two, that it would be a magnet to
24 pool other funds.
25 Is $25,000 significant in that
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2 neighborhood? No. But the way that money is
3 structured is significant because it could be
4 used for the risk and because it represents
5 almost 15 percent of the total net income on
6 that project.
7 I think that those kinds of
8 guidelines in looking at the notion of making
9 an investment in a community versus just
10 lending products to a community could make a
11 dramatic difference in how the $6 billion
12 increases.
13 Thank you very much.
14 MR. LONEY: Thank you.
15 Mr. McDonald.
16 MR. MCDONALD: Thank you for the
17 opportunity to testify this morning. I gladly
18 volunteered to testify before you today
19 regarding the many years of support that
20 Citibank has offered The Doe Fund, which I am
21 the president and founder of, and the
22 confidence I have that Citibank will continue
23 its commitment to our work well after the
24 merger with Travelers.
25 The mission of The Doe Fund is to
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2 empower formerly homeless individuals to work
3 and to realize their potential to live as
4 responsible, productive and self-sufficient
5 individuals.
6 In 1990, The Doe Fund launch Ready,
7 Willing & Able, an innovative work and job
8 skills training program which provides homeless
9 participants with meals, housing, social
10 services, basic education training and above
11 all, paid work opportunities. Since its
12 inception, the program has helped over 500
13 individuals to secure full-time employment and
14 permanent housing and to achieve lives of
15 productivity and independence.
16 The Doe Fund's original Ready,
17 willing & Able residence is located in Bedford
18 Stuyvesant, Brooklyn.
19 In 1996, The Doe Fund expanded the
20 program to the formerly city-operated Harlem
21 Men's Shelter, and on May 4th of this year, The
22 Doe Fund launched a Ready, Willing & Able
23 program in Jersey City, New Jersey. We also
24 operate the same program in Washington D.C.
25 Today The Doe Fund serves over 800
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2 formerly homeless member and women annually and
3 Ready Willing & Able stands as a model welfare
4 to work program for homeless service providers
5 nationwide.
6 The success and expansion of Ready
7 Willing & Able as has been experienced over the
8 years would not have been possible without the
9 support and guidance of Citibank. In 1991,
10 shortly after The Doe Fund opened the doors of
11 its first Ready Willing & Able residence, vice
12 president and director of corporate
13 contributions, Mr. Paul Ostergard, and several
14 Citibank colleagues, visited the program.
15 Impressed by the program's work-based
16 philosophy and recognizing the great need and
17 potential among our city's homeless population,
18 Citibank awarded The Doe Fund a grant of $5,000
19 and expressed a sincere interest in developing
20 a relationship with what was then a fledgling
21 organization.
22 Since that first visit, Citibank has
23 provided The Doe Fund with annual grants in
24 support of our work in excess of $50,000.
25 Citibank employees also frequently make
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2 matching gifts to support our work, and one
3 employee, Ms. Peggy Cohen, a vice president of
4 private banking, has served on The Doe Fund's
5 board of directors since 1995. Ms. Cohen, who
6 served as chairperson of our board from 1996 to
7 1997, has tirelessly given of her time and
8 energy in support of our work.
9 In addition to financial support over
10 the years, Citibank has generously provided
11 banquet rooms in its corporate headquarters for
12 community and board of director's meetings.
13 Last spring Citibank hosted a community
14 breakfast for prospective individuals and
15 foundation donors which resulted in a grant of
16 $75,000 from a local family foundation.
17 Most recently, the Citicorp
18 Foundation has awarded The Doe Fund a grant of
19 $10,000 in support of a revenue-generating shoe
20 making business, Harlem Shoemakers, Inc. With
21 the help of internationally renowned shoe
22 designer, Joe Famolare, The Doe Fund is working
23 to open a shoe factory in Harlem. Harlem
24 Shoemakers will employ low-income Harlem
25 residents, graduates and trainees of the Ready
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2 Willing & Able program.
3 Citibank is currently considering a
4 $500,000 line of credit for that business. I
5 might add parenthetically on lines of credit,
6 we're a small not-for-profit. We do about $12
7 million a year now and have about 150 employees
8 from none in 1990. So we grew during a period
9 of time that was -- we could call it a
10 depression in the northeast. And it is very
11 difficult to get banks to give lines of credit
12 to not-for-profits. I went to every bank in
13 New York City, and the only bank that would
14 give us the line of credit was Citibank.
15 Given that relationship, I feel
16 confident that they will continue to support
17 our work and grassroots organizations like our
18 own after they merge with Travelers.
19 Now, I might say, and I know it is
20 the not the subject of the hearing today, but
21 Travelers has been very supportive of our work.
22 Travelers is a terrific philanthropic company.
23 We only see good things coming about, as the
24 merger of these two great companies make for
25 greater support for our organization.
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2 Thank you for the opportunity to
3 testify.
4 MR. LONEY: Thank you, Mr. McDonald.
5 Mr. Espaillat. Is that how you say
6 that?
7 MR. ESPAILLAT: Yes.
8 Good morning, ladies and gentlemen,
9 my name is Freddy Espaillat and I am a graduate
10 of the Academy of Finance at Brandeis High
11 School in New York City.
12 Last summer I had what I felt was the
13 opportunity of a lifetime --
14 MR. LONEY: Could you put the mike
15 closer to you, please.
16 MR. ESPAILLAT: I applied to Salomon
17 Smith Barney for a summer internship they
18 sponsor as part of the Academy of Finance
19 program. I sent in my resume, was interviewed
20 for the position and was placed in the high net
21 worth department at Salomon Smith Barney.
22 This was my first job in the real
23 world and everyone at Salomon Smith Barney made
24 me feel like I was part of the organization.
25 My supervisor, Tina Monahan, took me out to
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2 lunch at least once a week and give me many
3 responsibilities.
4 I worked on the computer inputting
5 data into the database. I updated client
6 portfolios, and I was included in daily
7 department meetings. My internship at Salomon
8 Smith Barney taught me the value of teamwork,
9 punctuality, and gave me the ability to network
10 with coworkers. I feel all of these things
11 will help me build a better future.
12 In addition, I feel that my
13 internship greatly advanced my computer skills
14 which will help me when I go either to Barouch
15 College or DeVry Institute where I plan to
16 study computer programming and business
17 management.
18 I don't believe that I would have had
19 the opportunity to do any of these things if
20 Sandy Weill and the Travelers Group did not
21 create these opportunities for the students in
22 the Academy of Finance.
23 In conclusion, I would like to say
24 that I believe that the expansion of the
25 Travelers Group will make even more internship
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2 opportunities for many more students in the
3 Academy of Finance.
4 Thank you very much for the chance to
5 speak to you today.
6 MR. LONEY: Thank you very much.
7 I can't see that far.
8 MS. CHIN: My name is Margaret chin.
9 MR. LONEY: You are speaking for
10 Mr. Galan?
11 MS. CHIN: I am speaking on behalf of
12 Mr. Julie Colon.
13 Good morning. My name is Margaret
14 Chin. I am the executive director of the Asian
15 Americans for Equality Fair Housing Center.
16 I'm also speaking on behalf of our affiliates,
17 Asian Americans for Equality and Renaissance
18 Economic Development Corporation.
19 AAFE is a community-based nonprofit
20 organization founded in 1974 to advocate for
21 equal opportunities for minorities. We are
22 located in Chinatown, Lower East Side and
23 Flushing, Queens. Serving an estimated 20,000
24 people annually, AAFE's programs and services
25 include housing development, home ownership,
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2 housing rights, entitlement services
3 counseling, citizenship counseling, civil
4 rights, economic development and technical
5 assistance. AAFE has been actively advocating
6 for greater community reinvestment by banks
7 since its inception in the '70s.
8 The AAFE Fair Housing Center conducts
9 education and outreach, testing and assists in
10 the filing of complaints in the areas of fair
11 housing and fair lending to Asian American
12 communities in all five boroughs. The
13 Renaissance Economic Development Corporation is
14 a federally certified Community Development
15 Financial Institution, with a loan pool of
16 approximately $1 million to conduct lending
17 throughout the five boroughs in concentrated
18 areas of Asian and Latino immigrant
19 communities.
20 Today I would like to make you more
21 aware of the specific needs of the Asian
22 community generated by cultural and linguistic
23 differences, the impact of the Community
24 Reinvestment Act on the Asian-American
25 community, specific ways in which CRA can be
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2 strengthened to benefit low-income and minority
3 communities and the recommendation to Citibank
4 in light of this merger.
5 Asian-Americans are the fastest
6 growing population in both the United States
7 and New York City. The number of
8 Asian-Americans in New York City has doubled
9 from 1980 to 1990 from 3 percent to 7 percent
10 of the city's population, accounting for nearly
11 half a million people. By the year 2,000,
12 Asians are expected to compose over 10 percent
13 of the New York City's population.
14 Today, the diversity of the Asian
15 community is represented by over two dozen
16 nationalities, each with its distinct language,
17 religion and culture, its distinct challenges
18 and potential. Two out of three of us were
19 born in our native countries, and the majority
20 of those who chose to come here have difficulty
21 with language and its dominant culture.
22 The staggering four-fold growth in
23 the past 20 years of the Asian population has
24 spawned many challenges in its wake. The Asian
25 community lives in one of the most densely
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2 populated areas in the nation. In New York
3 City's Chinatown, there are 189 persons per
4 acre. Other areas of the city have only 37 per
5 acre. This density is accurately reflected in
6 the fact that in Chinatown, two or three
7 families often live together in a single
8 apartment. 95 percent of the housing stock in
9 Chinatown predates 1939, exacerbating the lack
10 of services and investment by the larger
11 community.
12 The Asian community is a savers
13 community. The increased population brought
14 tremendous deposits into banks operating in
15 Asian-concentrated enclaves. In Chinatown
16 alone, the deposits total $4 billion. But most
17 banks do not have mortgage officers who speak
18 Asian languages. Also, Chinatown landlords are
19 unable to access affordable financing for
20 building improvements. This lack of capital
21 allows for extensive housing deterioration,
22 causing dangerous conditions that leads to
23 fires, deaths and homelessness. Chinatown's
24 housing stock is among New York City's oldest
25 and has some of the most run-down conditions.
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2 According to a letter published by
3 Ming Pao Daily News, this was in 1997, this was
4 the rate of home ownership, and the Asian was
5 rated among the lowest in terms of home
6 ownership rate. Nationally among whites is
7 70.8 percent; women at 49.5 percent;
8 African-American at 44 percent; Latinos at
9 43.9; and Asian at 42 percent.
10 AAFE has found that home ownership
11 rate is an important vehicle for the Asian
12 community to enter the mainstream society and
13 to improve local communities. The lack of
14 Asian home ownership is caused by a dire lack
15 of information about home ownership and access
16 to credit and its related benefits available to
17 the local communities.
18 To overcome these obstacles, AAFE has
19 led a multipronged effort to meet the
20 challenges of the Asian community. Our work to
21 meet the challenges of the language and
22 cultural barriers has resulted in unprecedented
23 success, accounting for more awareness and
24 access to mainstream services.
25 In 1984, AAFE developed the first
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2 ever housing development project to utilize the
3 federal Low Income Housing Tax Credit program,
4 launching a public/private partnership that
5 continues to gain steam today. In the past ten
6 years, AAFE has raised over $40 million to
7 develop 400 units of affordable housing. Also
8 working with public and private partnership, we
9 counsel and access over $5 million of
10 affordable mortgages for over 500 families.
11 AAFE has a long history of
12 partnership with Citibank. Citibank holds the
13 largest proportion of AAFE's financial
14 businesses. AAFE is one of Citibank's Partners
15 In Progress, which contributes to AAFE's
16 housing development on the lower east side. We
17 have seen Citibank take a leadership position
18 in serving the Asian-American community in the
19 delivery of retail products, but we encourage
20 Citibank to deeper its commitment to economic
21 and community development to the Asian-American
22 community in the New York metropolitan area and
23 in Citibank's other major service areas.
24 AAFE looks to continue to work with
25 Citibank to deepen their investments and
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2 activities with the Asian-American and other
3 immigrant and minority communities.
4 We recommend, one, focusing on
5 partnering to provide long-term credit, 30
6 years versus the typical 10-year term, for
7 investment in new construction, such as new
8 in-fill housing throughout on the Lower East
9 Side. Today AAFE needs over 10 million in
10 long-term equity to continue our rate of
11 development. More would be needed to meet the
12 needs, or to spur greater activities on a
13 national level.
14 Partnership to spur community
15 development and home ownership initiatives with
16 the Asian-American community on a national
17 level. Cosponsoring national economic
18 development summits for the Asian-American
19 community. Cosponsoring technical assistance
20 workshops to increase the development capacity
21 of community groups.
22 Partnership with other organizations
23 and AAFE to create a community advisory group
24 to provide input directly to Citibank on local
25 and national issues that affects low and
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2 moderate and minority communities.
3 Provide more multiyear capacity
4 building grants to stabilize and expand the
5 work of nonprofit partners who have been forced
6 to fill the void of shrinking government
7 resources to spur economic growth in our
8 communities.
9 In this time of mega-merger, we
10 expect Citibank to expand its role in providing
11 financial services and spurring economic and
12 community development within the communities
13 they serve, especially the low and moderate
14 income, immigrant and minority communities. It
15 will be a big challenge but continuing to work
16 with community groups who understand the needs
17 can make the difference.
18 Thank you for the opportunity to
19 speak today.
20 MR. LONEY: Thank you. I might ask
21 you, Ms. Chin, have you asked Citibank about
22 that? You presented that list of your requests
23 to them. Have you gotten a response?
24 MS. CHIN: We've been having
25 discussions with Citibank. The executive
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2 director is not here for AAFE, but we do have a
3 long-working relationship with them, and I know
4 they support many of our projects, and I think
5 one of their vice presidents, Wendy Takhaja,
6 she is on the board of the Fair Housing Center.
7 So we will be discussing some of this, but we
8 would like to make the proposal in public.
9 MR. LONEY: Any questions?
10 MR. ALVAREZ: I had a question for
11 Ms. Nahikian. You spoke of the importance of
12 having both equity investments as well as
13 credit available for starting small businesses
14 and revitalizing communities. If you start
15 from the premise that banks have very limited
16 ability to make equity investments, their legal
17 authority is very limited in that area so they
18 are primarily lenders, and you look at
19 Citibank's commitment, or commitments of other
20 banks that have made similar kinds of
21 commitments to make CRA kind of lending, what
22 would, in your view, be the most effective way
23 that the banks could use their credit abilities
24 in order to help revitalize the community?
25 What kind of partnerships are available to
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2 bring equity into serve as a base for that kind
3 of bank credit?
4 MS. NAHIKIAN: I raise the issue of
5 equity or investment because I think the
6 opportunity with Travelers presents some of
7 that, perhaps for the first time. Banks, of
8 course, do loan money. That is their function.
9 I think there are three or four different ways
10 that credit issues could be addressed.
11 One is the notion that you have to
12 view underwriting of small businesses and what
13 brings value and what can be used as collateral
14 or equity in a lending situation. I think that
15 has to be looked at differently. I think that
16 you do have to look at things like family
17 equity, labor, some of the things that may not
18 traditionally be on the chart when you try to
19 value enough equity into a business to support
20 a loan.
21 I think another critically important
22 thing is the creation or working maybe in a
23 pool-risk situation to create some secondary
24 markets for small business loans. I think
25 everyone recognizes that on one hand small
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2 businesses have a high failure rate. On the
3 other hand, they are the fastest growing source
4 of employment in our country. I think it is
5 particularly true with minority and women
6 owners, that because of leadership from some of
7 our financial institutions and CRA, we are
8 seeing a number of new businesses and the
9 business owners get loans.
10 What we found is that the second loan
11 is even higher because it falls in a much more
12 traditional hole of do you have enough equity,
13 do you have enough operation. Particularly
14 women business owners seem to have a very hard
15 time getting the second line, the expansion,
16 the growth loan. Those are some of the
17 recommendations I would make.
18 I certainly think that AAFE has made
19 some excellent suggestions, because I think
20 that having direct input through an advisory
21 group will make a big difference. I'm not sure
22 that any of us know exactly what these products
23 look like. We just know that the risk analysis
24 doesn't work, but these are strong economic
25 institutions in our community that need
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2 support.
3 MR. LONEY: Thank you.
4 Any other questions? If not, I will
5 thank the panel.