Minority Deposit Institutions [MDIs] and other mission-driven banks are vital to the communities they serve and help to create jobs, grow small businesses, and build wealth. However, some MDIs have faced additional obstacles over the past few years with the push to go digital, increasing competition from online banks, and stressful economic conditions during the COVID-19 pandemic. This year, the FDIC has strengthened its commitment to supporting MDIs and other mission-driven banks.
Social Impact of MDIs
In 2019, the FDIC released a report detailing the structure, performance, and social impact of MDIs. This report showed that MDIs serve communities with low- or moderate- incomes [LMIs] and higher proportions of minorities. These communities have been historically underserved and many individuals within these communities remain unbanked or underbanked. In 2017, 16.9% of African American households and 14.0% of Hispanic American households were unbanked. This is significantly higher than the 3.0% of white households who were unbanked.
Compared to non-MDI community banks, MDIs issue a larger proportion of their mortgage loans to individuals who are minorities or live in LMI census tracts. In 2016, African American MDIs issued 33% of their HMDA-reportable mortgages to African American borrowers. Non-MDI metro nonfarm community banks issued less than 1% of their HMDA-reportable mortgages to African American borrowers.
In addition to originating a higher proportion of loans to minority borrowers, MDIs originate a higher proportion of loans to borrowers whose properties are in LMI census tracts. In 2016, the median African American MDI originated four times the share of mortgages to borrowers in LMI census tracts than the median non-MDI metro nonfarm community bank.
MDIs also make a greater share of their loans to small business borrowers in LMI census tracts. In 2016, MDIs made 35% of their small business loans to borrowers in LMI census tracts, compared to non-MDI community banks which made 19% of their loans to similar borrowers.
The FDIC’s report helped to quantify the positive impact that MDIs have in their communities. Over the past year, the FDIC has strengthened its commitment to supporting MDIs and other mission-driven banks in several ways.
New Developments for MDIs and Mission-Driven Banks
In the past year, the FDIC has increased engagement with MDIs and mission-driven banks and has made several changes to promote continued collaboration. These changes are detailed below.
Updated Policy Statement
In June, the FDIC revised its policy statement regarding MDIs. The updated policy statement describes the FDIC’s “enduring and strengthened commitment to, and engagement with, MDIs in furtherance of its goal of preserving and promoting MDIs.” In addition to clarifying definitions of some key terms, the newly updated MDI Policy Statement provides additional outreach opportunities, describes the newly created FDIC MDI Subcommittee, and updates measurements of effectiveness.
The updated policy statement also outlines how the FDIC will accomplish the goals laid out by the FIRREA Act of 1989. These goals include preserving the number of MDIs, encouraging the creation of new MDIs, preserving the minority character of MDIs in the case of mergers, and providing training, technical assistance, and educational programs.
Office of Minority and Community Development Banking
On November 2, FDIC Chairman Jelena McWilliams announced the establishment of a new office which will strengthen engagement with mission-driven banks. This office, called the Office of Minority and Community Development Banking, will help the FDIC promote investments from the private sector to support low- and moderate- income communities. The office will work with MDIs, Community Development Financial Institutions [CDFIs] and other mission-driven banks.
Chairman McWilliams said that the new Office of Minority and Community Development Banking will help expand the FDIC’s commitment to increasing financial inclusion. The FDIC believes that “[m]ission-driven banks are the financial lifeblood of their communities, enabling individuals and minority-owned small businesses to securely build savings and obtain credit.”
Mission-Driven Bank Fund
In September, the FDIC launched the Mission-Driven Bank Fund. Mission-driven banks include MDIs and CDFIs. These institutions support low- and moderate- income, minority, and rural communities.
The fund will give mission-driven banks an avenue to receive private investment and other resources. Mission-driven banks will be able to make pitches to the fund in order to receive investments which help the banks raise capital, weather economic downturns, build capacity and acquire technical expertise to improve operations and technical solutions.
Microsoft and Truist Financial are anchor investors in the fund and have each contributed millions to help the fund launch. The two anchor investors, along with media giant Discovery, have raised approximately $120 million to date. The fund aims to begin accepting proposals in early 2022.
Join the ADM Network Today
Banks, MDIs and CDFIs that partner with ADM have access to business customers across the country who are seeking extended FDIC protection or a more competitive return for their cash reserves. With our fintech, banks can increase deposits without spending additional time, effort, and money on marketing campaigns – allowing them to better serve their communities.
ADM’s bank partners have control over their funding needs. This is achieved by allowing each bank to adjust the rates they are willing to pay for deposits. Bank partners can also set a maximum balance so that they only receive the funds they need.
If you would like to learn more about how a partnership with ADM can benefit your institution, reach out to a member of our team today.