Funny how money changes things. Long seen as a nonmarket
for banks, Native American reservations are rife with anecdotes about
30-mile drives to the nearest town to do any banking or to use seemingly
ubiquitous ATM machines. First Nations, a Native American advocacy group,
called the banking gap between border towns and reservations the "buckskin
Very little formal research exists regarding the penetration
of banking services on reservations, or the use of these services by Native
Americans. One informal study by the Federal Reserve Bank of Minneapolis
in the early 1990s found numerous reservations without banks in upper
Plains states despite populations reaching into the thousands and often
the presence of small, incorporated cities within reservations.
The city of Pine Ridge, with a population of about 3,000,
is the largest city in Shannon County, S.D., and the largest on the Pine
Ridge Reservation. Neither the city nor reservation has any bank. In contrast,
there are seven cities in the state starting with the letter "A" with
a population of less than 1,000 served by at least one bank (Alcester,
Alexandria, Alpena, Arlington, Armour, Artesian and Avon, according to
the McFadden Upper Midwest Financial Directory).
Given the general geographic isolation of many reservations
and historically low incomes and high unemployment rates of its residents,
there is often little in the way of a viable banking market on many reservations.
With a reservation population estimated by various sources at between
15,000 and 30,000, the Pine Ridge Reservation spans roughly 2 million
acresmore than 3,000 square miles. Median income on the reservation
is just one-fifth the national average, more than eight of 10 are unemployed,
and 70 percent live below the poverty line.
The Crow Reservation in south-central Montana is home to
roughly 7,000 tribal members, spread over several thousand square miles.
The reservation is dotted with only a few very small cities and has an
unemployment rate of 44 percent and average per capita income of just
$4,200, according to information from the Montana-Wyoming Tribal Leaders
Council. The nearest banks are off the reservation in the border cities
of Hardin and Billings.
But economic conditions on some reservations are improving,
and the buckskin curtain appears to be fallingalbeit slowlybecause
banks are beginning to see reservations as untapped markets. More intriguing,
some tribes are taking banking matters into their own hands by owning
or controlling their own bank.
Currently, there are seven U.S. banks either wholly owned
or controlled by Native American tribes. (According to the Federal Reserve's
Regulation Y, control exists when a party holds a 25 percent stake in
a bank or bank holding company, although it can exist at lower thresholds,
depending on other criteria.) An eighth bank is 3 percent owned by a tribe.
The Blackfeet Tribe of northwestern Montana was the first
of this group to own a bank, when it took over a failed bank in the city
of Browning in 1987. Today, Blackfeet National Bank continues to be the
only bank on the entire Blackfeet Reservation.
Interest in tribal banking came to a head in 1997, when
four tribes opened banks, according to J.D. Colbert, president of the
North American Native Bankers Association (NANBA). That year, the Office
of the Comptroller of the Currency (OCC, which regulates nationally chartered
banks) also sponsored a conference on tribal banks that attracted 300
to 400 people, including many tribal members, Colbert said.
"It really opened my eyes to the level of interest in banking
in Indian Country," Colbert said. Follow-up discussions with other conference
attendees ultimately led Colbert to organize NANBA. "The more we talked,
the more we came to [understand the] need for an association" to support
tribal attempts to own a bank, Colbert said. Since NANBA's creation in
1998, Colbert estimated that the organization has been contacted by 50
to 75 tribes looking for advice and assistance on banking.
Growing middle class fueling demand
Much of the interest in banking on reservationsby
both tribes and mainstream banksis the result of rising standards
of living for tribes over the last decade.
"Twenty-five years ago, there was no middle class" on reservations,
Colbert pointed out. Thanks largely to gaming, the middle class is starting
to take root on some reservations. Since 1988, when Congress formally
recognized the limited rights of tribes to conduct gaming operations,
tribal gaming has grown almost 40-fold to more than $8 billion last year.
A 1997 General Accounting Office report on 127 gaming tribes found that
one-third of their gross receipts that year (or a total of $1.6 billion)
were transferred to tribal coffers. This money was then either distributed
to individual members or, more commonly, used by the tribes for community
investments like recreational centers, housing, roads and member services.
Equally important for potential banking markets, jobs on
or near reservations have become more plentiful for tribal members. Although
Native Americans typically make up less than one-fourth of a casino's
workforce, such places nonetheless also offer badly needed employment
opportunities to tribal members. The National Indian Gaming Association
(NIGA) estimates that 50,000 Native Americans are employed in tribal gaming
Tribal business enterprises and tribal governments "have
created some good-paying jobs" as well for members, Colbert said. For
example, the Mille Lacs Band of Ojibwe in Onamia, Minn., reportedly employs
almost 500 people in its tribal government alone. Along with two large
casinos, the tribe's business investments also include three hotels, two
convention centers, an amphitheater, golf course, bakery, gas station
and several restaurants. In 1996, the tribe bought a local Onamia bank,
renamed it Woodlands National Bank and added two branch offices in the
Economic opportunities for some tribes have expanded to
the point where members are even moving back to the reservation, Colbert
said, and demand for financial services on reservations has followed in
step. "They want, need and expect a broad range of [financial] services
in Indian Country."
Mainstream banks have taken notice. For example, when Norwest
Mortgage (now Wells Fargo Home Mortgage) closed a mortgage loan on Crow
Creek Reservation in south-central South Dakota last year, it culminated
a three-year effort to close at least one loan on all nine reservations
in the state. Meeting this growing demand on reservations, however, brings
with it unique legal challenges for mainstream banks. For example, real
estate is typically used as collateral on residential loans. But for Native
Americans, their land is likely held in trust, which requires banks to
look for new approaches to securing appropriate collateral. An OCC survey
found that banks "would like to increase the volume of mortgage and other
lending to Native Americans," but added that securing collateral and having
access to that collateral "in the event of default can prove difficult."
Tribal sovereignty also means that tribal courtsnot
state courtshave authority over legal efforts to collect payments
on a delinquent loan on a reservation. As such, banks have "a fear of
not getting a fair shake in tribal courts" should loans on the reservation
go bad, which "creates reluctance on the part of banks to reach out and
make loans on reservations," according to Kevin Costley, an attorney with
the Minneapolis law firm Lindquist and Vennum and general counsel for
At the very least, it can make lending on reservations
an arduous task, especially when combined with other compounding factors,
like poor or nonexistent credit histories of many tribal members and reputed
bureaucratic tendencies of tribal governments. This summer, a ceremony
was held to celebrate the first closing of a privately financed home mortgage
on Navajo trust lands in Arizona. It was six years in the making.
In the competition for business on reservations, some believe
that tribal banks have certain competitive advantages over nontribal banks.
Costley acknowledged that despite "more effort than ever by [mainstream]
banks to reach out" to Native Americans, "there is still reluctance among
members to use" bank services.
One reason for this reluctance appears to be trust and
familiarity. A survey of banks by the OCC found that "many banks are unfamiliar
with tribal cultures and may not know how best to meet tribal financial
product and service needs."
Costley said bank usage among Native Americans is typically
low because reservations tend to be cash-and-carry economies. Introducing
financial services like checking accounts can be difficult because "tribal
members tend to be very wary of outside vendors" who might be unfamiliar
with tribal culture. The familiarity of a tribal bank "breaks down the
vendor-vendee relationship" that keeps some Native Americans from using
banks, he said.
Tribal sovereignty "a hot potato"
While tribal banks might have a few comparative advantages
in bringing banking services to Indian Country, tribes face their own
unique issues in owning or controlling a bank. Foremost among them is
tribal sovereignty and bank chartering.
Given a tribe's authority as a sovereign nation, there
are legal issues regarding a tribal bank's membership in the U.S. banking
system and its regulation by various state and federal agencies. Officially,
the OCC and other federal banking regulators "have taken a position that
tribes proposing to establish or acquire a bank must agree not to raise
a claim of tribal sovereign immunity as a defense to any regulatory or
administrative action," according to an OCC report. Lewis Anderson, president
of Woodlands National Bank, said, "To my knowledge, most [tribes owning
banks] don't object" to these ground rules.
But for many tribes, sovereignty is "a major political
and emotional and cultural issue," said Keith Holmes, a banking lawyer
with King, Purtich, Holmes, Paterno & Berliner in Los Angeles, who counts
several tribes as current clients. From tribes' perspective, dealing with
federal and state governments "has been a mixed history at best," he said,
which has led tribes to be very protective of their sovereignty. "They're
very leery of ceding jurisdiction over things to the federal government,"
However, the theory and practicality of tribal sovereignty
can play out very differently, according to several sources. In general,
sovereignty is held onto tightly by some tribes, and "any compromises
of that sovereignty are to be avoided at all costs," Costley said. But
he added that most tribes interested in owning a bank "are more pragmatic"
about the sovereignty issue. They understand the nature of the compromise,
"but they don't want to compromise any more than they have to, to get
the benefit" of a charter. He likened the trade-offs to those made in
any international trade pact, where countries swap certain things for
items deemed of greater value.
In this case, bank charters bring with them the advantages
of deposit insurance and access to the payments systems. Without these,
tribes would have difficulty getting off the ground. "Tribes that want
to do it are going to have to face [sovereignty] as a threshold issue,"
Holmes said. "It's hard to serve customers if you can't cash checks."
Formal sovereignty waivers are not mandatory, and only
two bank-owning tribes have them, according to Jan Kalmus, a national
bank examiner and licensing expert specializing in charters for the OCC.
In other cases, tribes that have a controlling interest in a bank must
merely submit to those regulations and disclosures that apply to any other
controlling party. For those tribal banks without formal sovereignty agreements,
getting access to necessary information for examinations and oversight
has been "no problem," Kalmus said. "When you look at it, it's sort of
an abundance of caution."
Until a few years ago, there was no official policy regarding
tribal sovereignty and banking. When the Eastern Shawnee Tribe of Oklahoma's
share of People's National Bank (Seneca, Mo.) went from a minority share
to controlling interest, the issue of the tribe's sovereignty had to be
addressed with regulators, who at first "were scared to death," said Dale
Washburn, bank president. "They didn't know how to deal with it."
At a conference on tribal issues last year in Onamia, Minn.,
Colbert told attendees, "Nobody ever thought [banking and tribes] would
cross. ... Regulators didn't have a pigeonhole to put it in. It was a
With six of eight tribal banks having national charters,
the OCC has played the lead government role in working through policy
and administrative issues regarding chartering of tribal banks. Two years
ago, it published a 77-page guide to help tribes through the organization
and application process. The Federal Reserve is responsible for regulating
state-chartered member banks (of which there are two) and bank holding
companies (currently only one, owned by the Mille Lacs Band). In the mid-1990s,
the Minneapolis Fed held a series of seminars about lending in Indian
Country and it continues to provide banks with technical assistance.
There have, however, been three cases where a tribe has
chosen to forego regulator approval and self-chartered its own financial
institution. The most recent was the creation of Glacier International
Depository this year by the Blackfeet Tribe, which followed two others
in Oklahoma about three years ago. In each case, however, the financial
entity was set up as an offshore depository (like those found in Switzerland
and the Cayman Islands that provide safe haven for foreign depositors)
and not as a traditional bank.
Given this unique distinction and tribal sovereignty, such
financial institutions areat least currentlyconsidered outside
the enforcement of state and federal banking regulators. But in the two
Oklahoma cases, the OCC put these tribal depositories on its "unauthorized
bank" list, and joined the state of Oklahoma in warning banks and the
banking public "to exercise extreme caution when engaging in any transaction
involving this entity." (Although the states of Montana and Colorado have
passed legislation permitting offshore depositories, there are currently
no such nontribal entities in the United States.)
Itching a niche
For those tribes taking the more traditional path of banking,
there is a twofold strategy: to provide what tribes believe is improved
and customized bank service to tribal members on the reservation, and
to help tribes diversify their investments and promote more broad-based
economic development beyond gaming.
The Borrego Springs Bank, N.A., is 70 percent owned by
the Viejas Band of Kumeyaay Indians, whose 1,600-acre reservation lies
about 35 miles east of San Diego. The bank is headquartered in Borrego
Springs, Calif., a community of about 3,500 people. With five locations,
including one on the reservation, the bank is filling needs for the "community
around the reservation as well as the reservation," said Frank Riolo,
the bank's president and chief executive officer.
After the tribe gained control of the bank five years ago,
the bank spent considerable time developing a new portfolio of financial
products, Riolo said. This focus "suppressed earnings" early on, but the
bank is starting to see the payoff. Earnings, though small at just under
$300,000 for the first half of this year, are up more than 430 percent
over the same period last year.
Executives are quick to point out that tribal banks are
not grant-making organizations. Asked why the Mille Lacs Band was interested
in owning a bank, Anderson of Woodlands National Bank said, "Obviously,
the reason is to make money."
And just because banks are owned by tribes doesn't mean
their customer base is exclusively Native Americans. "We're still a community
bank," Washburn said. "We serve the community's needs, not just Indian
Washburn acknowledged that serving the banking needs of
the Native American community "is not that easy" because many "don't understand
the importance of credit" or credit histories. Nonetheless, the bank confers
no preferential lending to tribal members. "We haven't made any exceptions
on loaning on Indian-owned lands," Washburn said.
The bank has, however, found new ways to lend to tribal
members without exposing the bank to unnecessary risk. In one case, the
tribe purchased several certificates of deposit (CDs), which the bank
uses as collateral for loans to individual tribal members. "It's a way
to help those that would not normally qualify under normal circumstances,"
Loan applications for this program are reviewed by a three-person
tribal committee for traditional lending criteria, like repayment ability.
Tribal loan applicants also are expected to put up whatever assets they
might own for collateral, like a car. Such assets do not necessarily have
to equal the value of the loan, Washburn said, but the intent is to create
some accountability for the loan recipient.
"What's neat about it is that we've had success with it
[lending in Indian Country]," Washburn said. He admitted they weren't
printing money with the program; in two years, the bank has made about
30 loans worth about $150,000. But there are intangible successes to build
on, he said, like the fact that several loans have already been repaid
and these tribal members now qualify for loans on traditional terms.
Asked about perceived fairness issues, he pointed out,
"If the community at large had someone to put up a CD [as collateral],
we'll make that loan [to non-Indians], too. But the community at large
doesn't have that person."
Owner's manual still in draft form
Like mainstream banks, tribes also face a litany of obstacles
in bringing financial services to Indian Country. Owning or controlling
a bank "is an intimidating concept to some of the tribes because of the
resources involved and [a tribe's] lack of banking expertise," Costley
To get started, a tribe needs millions in up-front capital.
For some tribes, this might not be a difficult a hurdle to clear. Capital,
according to Holmes, the Los Angeles attorney, "usually is not an issue.
The money is usually there."
Most of it comes from gaming. At least six of the eight
tribes involved in banking having significant gaming revenue. In the not-too-distant
past, Washburn said, "a lot of tribes didn't have a lot of money. Principally
through gaming, tribes are coming into some money."
But only about 200 of the roughly 560 federally recognized
tribes in the United Statesabout 35 percenthave gaming compacts
with their respective states, and Costley estimated that only three of
four earned "significant" gaming revenue. In fact, just 22 tribes earn
more than half of all tribal gaming revenue, according to NIGA.
Even for those with ample capital, few tribes have much
experience in banking. Given the complexity of starting a de novo bank,
which includes market feasibility studies, and a lack of banking experience,
tribes have instead chosen to acquire their bank or take over as major
shareholder. Many start with a minority position in the bank "to get their
foot in the door" and get industry experience, Colbert said. As they get
comfortable, "we see them stair-step their way up in ownership."
People's National Bank was not specifically intended for
tribal ownership when Washburn and a partner first started looking for
investors in a new bank in 1994. When it received its charter in 1996,
the Eastern Shawnee Tribe was just one of more than 100 investors, owning
a 14 percent stake. Shortly thereafter, however, the tribe increased its
stake to 33 percent and now owns 56 percent of the bank, Washburn said.
Attracting good management has been another critical obstacle
for tribes and, given its banking inexperience, has meant hiring from
outside the tribe. Along with the normal challenges of running a bank,
executives face additional tasks in taking the helm of a tribally owned
bank. For instance, as tribes pursue control of a bank, tension with non-Indian
communities appears to be fairly common. When the Viejas tribe in California
first became interested in owning a bank in 1995, there were virtually
no examples of how to go about getting a charter for an Indian-owned bank.
The tribe first attempted to get a state charter, but "had
a miserable time with the state" of California because of lingering hostility
over gaming in the state at the time, Holmes said. Riolo acknowledged
that the rancorous debate over Viejas gaming "created a lot of publicity"
for the tribe, much of it negative. The tribe ultimately abandoned efforts
for a state charter, and later received a national charter for Borrego
Springs Bank, Riolo said.
Washburn admitted there were some concerns in the Seneca
community about People's National Bank being tribally owned. Earlier,
the tribe wanted to start new casinos in Missouri and "tried to ram down"
the initiative past strong local objections. "That didn't go over very
well," Washburn said. "The community got real down on them."
As a result, the bank and the tribe "had some repair issues"
to deal with, Washburn said. "We've bridged those reputation-type risks
... [and] are now well-received in the community." In fact, the tribe
hosted the town's July 4 celebration, complete with a program that jointly
celebrated the mutual struggle for freedom by both naturalized Americans
and Native Americans.
"It was awesome. I get goosebumps talking about it," Washburn
said. The bank and tribe now are such an ingrained part of the community,
Washburn said, "I'm not a member [of the tribe], but I feel like it sometimes."
The larger, diversified picture
Ultimately, tribal ownership of banks gives tribes a tool
to leverage gaming and other revenue into new enterprise on or near the
reservation, providingand sometimes customizingcapital for
both consumer needs and commercial endeavors of tribal members.
Washburn said People's National Bank doesn't have "nearly
the profit margin" of the Eastern Shawnee's bingo operations, "but it
provides for other needs in becoming self-sufficient."
"A bank has a way of magnifying the resources available
to tribes" and their members, Costley said. For instance, a bank with
$10 million in reserves enables them to lend as much as $90 million, Costley
said, "So you have the magic of leverage."
Most are optimistic about the potential market for tribal
banks, though predictions varied. Colbert said he expected four tribes
to file charter applications in the next year. Washburn believed there
might be market enough for 50 tribal banks in the future as gaming tribes
look for new economic development outlets for this revenue. Costley estimated
there might be 15 tribal banks in three years. "I see it as the beginning
of a significant development," he said, but added, "It's going to be slower,
Given that a majority of tribes do not have gaming operations,
many tribes cannot afford to jump directly on the banking bandwagon, at
least not in the immediate future. Most tribes have long had some industry
on the reservationmining, timber, light manufacturing, tourismbut
few generate the net income of gaming operations.
To existing tribal banks, however, nongaming tribes represent
a potential market. Earlier this year, for example, California bands signed
a compact with the state to share revenue with nongaming tribes, something
the Viejas tribe had been doing "well before the compact," Riolo said.
With revenue sharing, Borrego Springs Bank is looking to position itself
as an intermediary between gaming and nongaming tribes purchasing services
from one another. "I want to be able to connect those dots," Riolo said.
People's National Bank lies on the Missouri side of the
border with Oklahoma"cross the speed bump and you're in Oklahoma,"
according to Washburn, and just 30 miles away from eight different tribes.
"It's become a niche market to work with Native American tribes."
Along the way, tribal banks might even impact how mainstreet
community banks do business on or near reservations. Neither the American
Bankers Association (ABA) nor the Independent Community Bankers Association
has an official position on tribally owned banks. A spokesperson for the
ABA said there has been increased dialogue between banks and tribes to
deliver better access to services and capital to Native Americans living
But if tribes believe they receive poor service, "they
have every right set up their own institutions," said Judith Knight, director
of the ABA's Center for Community Development. While tribal banks could
impact other nearby community banks, their presence should enhance local
banking competition to the benefit all customers, tribal and nontribal.
"I would think it would be considered a good thing," Knight said.
Me-tooism: Show me the money
Despite the enthusiasm and market opportunities seen by
some, however, the tribal banking movement is still trying to find its
legs. "Banking isn't quite yet real high on the radar screen" of tribes,
Colbert said. "Their focus is what they can do with their gaming opportunities."
Even among interested tribes, the decision-making process
can be very prolonged. For one, tribal councils typically require consensus
in their decision-making, several sources said, which can be time consuming.
Equally important, banking "is foreign to the Indian culture," Costley
said. "So it takes them a little while to be comfortable with it. They're
Riolo said there was one clear way to get more tribes interested
in banking, and for non-Indian banks to provide better service in Indian
Country. "If we can show we can make money, that will provide much more
of an impetus," Riolo said, adding that such an opportunity appears to
be on the horizon "as tribes create more and more wealth."
Costley agreed. "There's a little me-tooism among the tribes.
If an idea gets hot, people want to do it."