Minority Depository Institutions

Policies are in the works to improve the struggles of minority deposit institutions (MDIs). Jill Sung, president and CEO of Abacus Federal Savings Bank in New York City and chair of ICBA’s Minority Bank Advisory Council and Consumer Financial Services Committee, has recently testified before congress on behalf of the ICBA regarding the impact MDI’s make in underserved communities. The FDIC defines MDIs as “any Federally insured depository institution where 51 percent or more of the voting stock is owned by minority individuals or any such institution where a majority of the Board of Directors is minority and the community that the institution serves is predominantly minority.”²

MDIs seek to empower low-income and minority members of their local community by offering credit and financial services to those who larger banks would normally turn away. MDIs originate the larger share of mortgages for low-to-moderate income earners. MDIs also serve in lessening discrimination and language and cultural barriers. Mystery shopper research studies found that loan officers from non-minority banks regularly discriminate against minority small businesses. Minority-testers were “more frequently asked to provide information like financial statements (83% vs. 50%), personal savings and investments (61% vs. 22%), and credit card debt (43% vs. 13%). Minorities were also less frequently offered help to complete a loan application (18% vs. 59%), offered a business card (43% vs. 82%), or offered help with future banking needs (43% vs. 68%).”²

MDIs face many challenges regarding serving these communities, as these consumers are usually the first and hardest hit in economic downcycles. The number of MDIs has dropped 31% (from 215 to 149) since 2008 during the housing crisis and recession. In addition to the unique burdens they experience, MDIs are also facing the same challenges as community banks, such as regulatory burdens, historically low interest rates, and competition from taxpayer-subsidized credit unions.

Sung offered some solutions in her testimony which include:

• “Promote the formation of new MDIs by phasing in capital requirements for minority de novo banks,
• allow MDIs to bid first on acquiring the assets and deposits of failed MDIs,
• promote the Community Reinvestment Act provision encouraging banks to collaborate with MDIs for possible CRA credit,
• design federal programs that inject capital and deposits and provide technical assistance to MDIs, and
• streamline the process for MDIs to become Community Development Financial Institutions and maintain that designation.”¹

MDIs have a long history in our country. The first MDI was created in 1865 to help freed slaves under the “Act to Incorporate the Freedman's Savings and Trust Company." Even still today, the survival of MDIs is necessary for the health of the United States’ financial system as well those members of the community they serve.

Sources:

1. https://www.icba.org/news/blog-details/main-street-matters---advocacy/2019/11/13/minority-banks-too-important-to-lose?utm_source=informz&utm_medium=email&utm_campaign=informz&_zs=SucBb&_zl=D48q1
2. https://financialservices.house.gov/uploadedfiles/hhrg-116-ba15-20191022-sd002.pdf
3. https://www.federalreserve.gov/publications/files/preserving-minority-depository-institutions-2018.pdf
4. https://www.jdsupra.com/legalnews/fdic-focuses-on-minority-depository-96095/