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Arguments that white lenders use to defend their approach
To begin with the first reason that the white lenders use to defend their approach towards minority lending is the fact that lending institutions operate under certain rules which demands that a particular bank maintain a certain amount of equity reserves. White lenders argue that many minorities take loans which they cannot afford to pay. According to their arguments, some households take mortgage loans with anticipation that the prices for these houses will increase but in some circumstances the anticipated prices for these houses fall hence making them unable to pay the mortgage. This leads to large scale defaults on the financial securities held by the individual lending bank. The defaults that arise from certain individuals not paying their mortgage and money borrowed as required have negative effects on the bank. Sometimes these defaults can lead to wide spread economic crisis. The other reason tabulated by white lenders is the notion that consumer protection laws which involves lending have not been well stipulated given the facts that banking institutions operate on a given regulatory notion.The regulatory law is stipulated by the banking regulators where it requires that individual banks focus on its safety, stability and soundness rather than customer safety (Campbell, pp.250-260, 1999).
The other reason is the regulatory law which requires that particular banks retain a certain amount of reserves and equity. This law restricts the lending policies of a given bank since it requires that before any bank or lending institution make any money grants the client is assessed thoroughly to determine if they he/she meets the criteria. In this case some minorities may want a certain credit service or may apply for a certain amount of cash as a loan but the client does not qualify for it. This situation forces the white lenders not to give out the money to the respective minority. The other reason is the mere fact that, entire lending system actually rests on the government lending rules that are concerned with the monopoly and currency circulation. The white lenders argue that the lending management system is regulated by the central bank which is an independent monetary authority concerned with currency circulation to all financial institutions. The fact that banks are usually excluded from the general laid down rules which concerns bankruptcy they are contained in the mercantile law. This indicates that lending institutions especially those owned by the white lenders are subjective to administrative laws and procedures that are associated to lending. Banks normally fail to prevent any external forces that may result to externalizations of bank liquidity. These situations forces the banks to meet their prime costs imposed on certain loans which are non-recoverable contributions made inform of deposit guarantee fund. Usually this system only allows relevant banks to create external loans by holding a certain fractional part of the reserves received on deposits or Treasury (Campbell, pp.250-260, 1999).
Deregulation is the last reason where governments mandates or removes some perverse lending incentives from the banks. This forces banks to make reckless decisions with an aim of maintaining minimum equity reserves. This situation leads strict lending rules where the ability of a minority to pay is thoroughly assessed before they are given a loan. The white lenders argue that such situations are normally difficult since it restricts them to retain certain deposits as a lending institution per requirement. This normally brings difficulties in efficiency of offering good lending services to the minorities (Campbell, pp.280-300, 1999).
Lending policy that Humphrey advocates for and he defends it
According to the research conducted by Humphrey on good banking policy that ensures equal lending rights to the minorities, he suggests the Federal Financing Bank Lending Policy (FFB).He describes this policy as one of the best lending policies as it can be used as a vehicle through which Federal agencies can be used to finance particular programs which involve selling and placement of credit market instruments. Under this policy the agencies are given the mandate to sell the securities to different individuals through guaranteed obligations, participation agreements and sale of assets. This policy acts under the Federal Financing Bank Act which has a legislative mandate when it comes to money lending. The guaranteed program entails large scale lending to various individuals in lump sum amounts and small scale lending to the minorities. Normally banks make funds to the Federal agencies as well as the guaranteed borrowers in relation to the program requirements at a lower rate than what the minority can receive when they borrow directly from the banks or private credit markets (Campbell, pp.270-280, 1999).
Under this policy the bank normally provides a lending rate for any amount required as well as the maturity date. Normally the rate which is charged by the bank is done in terms of prepayment provisions, forward interest rate commitments that are done through the pass service charges which are very flexible and easier for the minorities to pay. Lending laws are normally determined by the terms as well as the timing agencies of the province and Treasury secretary. Lending policies formulated by Federal Financing Bank are very flexible hence it reduces any chances for individual defaulting his/her loan. It operates under bank policy whose mandate is to charge interest rates that captures the minimum liquidity between the treasury securities and other private sectors lending rates. Federal Policy ensures that the interest rate charged fully reflects the risks involved and which are inherent to the borrower (Campbell, pp.250-260, 1999).
The Federal Bank Policy offers borrowers with choice of prepayment where a particular borrower can pay his/her loan at a lower rate according to the agreement. The privileges stipulated by Federal Bank Financing Policy are normally applied to any borrower and the main reason for such conditions is to protect the bank and the treasury from any financial loss. A borrower therefore is supposed to select a prepayment privilege that best suits his/her borrowing status before he/she makes any application for a loan from the Bank. According to the Federal lending Bank Policy two kinds of prepayment privileges exists which include the Market value Repurchase Privilege which allows the borrower to repurchase a certain amount of money as loan at any time for a price that is equivalent to the market value of the unpaid obligations on the loan through its maturity. The other kind of privilege is Fixed Price Prepayment Privilege which is considered a second payment method which allows the borrower to make prepayments on a particular loan either at par or par plus. This is normally selected by the borrower at an additional cost that is equal to the interest rate spread by the Treasury (Campbell, pp.250-260, 1999).
According to the rules and regulations of this policy it requires that the banks offers the borrowers with refinancing privileges at costs and terms which the minority can actually afford. In addition a particular bank is supposed to allocate some funds which can be used as an assurance for funds availability to eligible borrowers without necessarily the interest rate fee on such service being determined. This policy ensures that banks sets particular loan rates on certain funds which act as commitment to ensure that future rates are actually borne by the individual borrower (Campbell, pp.240-250, 1999).
Reasons why white lenders were racially biased
The stipulated reasons as to why the white lender discriminated the minorities were the ideas based on the thoughts that the minorities could not afford to repay the loans in time. This criticism was based on the past history of the minorities not repaying the loans on time especially the house mortgages. Though the white lenders used this argument against discriminating the minorities it was not sufficient enough for the white lenders to discriminate the minorities and the blacks. This is due to the fact that all people are equal, only the skin colour is different which concludes that the minorities were capable of repaying their mortgages on time. Since the minorities mostly were blacks the white lenders took advantage of the situation by undermining them using their skin colour which was different from that of the whites as they considered them to be more primitive (Campbell, pp.200-220, 1999).
Actions that should have been taken by white lenders according o Humphrey
According to Humphreys approach the minorities were supposed to be granted the rights to borrow loans from the white lenders as other white people. It was unfair for the white lenders to discriminate the minorities when it comes to loan borrowing yet the minorities were willing to repay the loans on time. The white lenders therefore should extend the loan services to the minorities under fair interests rate since high rates charged by the banks were unfair as it made it difficult for the minorities to effectively repay their loans. According to Humphreys approach the best lending bank policy was the Federal Lending Bank Policy which enabled banks to offer credit services to the minorities at a lower interest rate. This option could be the best option since it will reduce the number of defaults being received from the minorities as the interest rate is easy to repay (Campbell, pp.210-220, 1999).
Works cited
Campbell, Bebe M. Brothers and Sisters, 200-300. New York: Macmillan, 1999.
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