Minority-owned financial institutions still key for traditionally underserved communities

Federal banking regulators this week released a new research study that shows mixed results for so-called Minority Depository Institution, or MDIs, in terms of financial stability, revenue generation and loan performance.

The new study was released on Wednesday (June 26) at the end of the two-day 2019 Interagency Minority Depository Institution and CDFI Bank Conference in partnership with the Federal Deposit Insurance Corporation (FDIC) , the Federal Reserve Board and the U.S. Treasury’s Office of the Comptroller of the Currency (OCC). The two-day conference in Washington, D.C., included discussions on a wide range of topics related to MDIs, such as innovation, supervision, cybersecurity, and federal programs.

“The health of Minority Depository Institutions is essential to the health of our nation’s financial system. FDIC is dedicated to preserving and promoting the financial strength of MDIs. The vitality of these banks is critical given their role in supporting the economic well-being of minority and traditionally underserved communities,” said FDIC Chairman Jelena McWilliams in her opening remarks.

In highlighting the new report, McWilliams said financial regulators examined the role of minority-owned banks’ impact on the financial services industry and the communities they serve. Overall, reflecting an overall industry trend in mergers and acquisitions, the number of MDIs declined 31%, but consolidated more gradually overall compared to community banks, which declined by 33%.

Compared with the more than 5,400 insured financial institutions, the number of MDIs is small. Leading up to the 2008 financial crisis, the number of MDIs increased from 164 to 215 before declining to 149 as of December 31, 2018. The number of African American MDIs declined by more than half during this period. African American MDIs represented 15% of all MDIs at year-end 2018, compared with almost 30% in 2001. However, the number of Native American, Hispanic American, and Asian American MDIs increased during the same time period.

Other key findings showed that a segment of MDIs have seen significant improvements in finances over the past five years, particularly in terms of revenue generation and loan performance.

The study also found that, despite this consolidation, more than three-fourths of the assets of merged MDIs and 86% of the assets of failed MDIs, remained with surviving MDIs. In addition, the study concludes that MDIs originate a greater share of mortgages than non-MDIs to borrowers in low- and moderate-income census tracts and in census tracts with larger shares of minority populations. The same is true for MDI origination of guaranteed Small Business Administration 7(a) loans for minority-owned businesses.

To view the full 75-page report, click here.