Minority Banks

The Federal Deposit Insurance Corp. (FDIC) defines a minority bank as:

"…any depository institution where 51 percent or more of the voting stock is owned by one or more minority individuals. Minority refers to any Black American, Asian American, Hispanic American, or Native American. In addition, a financial institution can receive the Minority Bank designation if the majority of the Board of Directors is minority and the communities they serve are predominately minority."

A League of Their Own

Historically, the financial needs of minority and low-to-moderate-income communities were often ignored. Loan requests were frequently denied or approved with much higher interest rates and collateral requirements. Motivated by these discriminatory practices, which are collectively known as redlining, minority banks were formed to empower minorities and low-to-moderate-income communities by providing them with access to credit, capital and financial services.

Minority banks still play a crucial role to many minority and low-to-moderate-income communities and small businesses, often serving as the only safe option for them to do business. Without minority banks, many minorities and low- to-moderate-income customers would be susceptible to predatory practices, such as payday loans and car title loans that only keep them in debt.

Minority banks have a special skill set and understanding of cultural practices and norms that positions them to reach out to a cross-section of Americans—something majority-owned banks may not have. Minority bank shareholders, directors, officers and staff know and understand the culture and language of the communities they serve, allowing them to customize culturally sensitive products and services. For example, serving a community with first- and second-generation Chinese immigrants requires the ability to overcome issues of trust, language barriers, and customs.

Market Dynamics

There are 149 FDIC-recognized minority banks serving minority and low-to-moderate-income communities. Although most minority banks operate in metropolitan areas, they are also located in rural and suburban areas nationwide. Minority banks range in assets from $23 million to $41 billion, with total assets of $239 billion; however, 118 of these banks are under $1 billion in assets.

There are 73 Asian American banks, 33 Hispanic American banks, 23 African American banks, and 18 Native American banks. Asian American banks lead the minority bank industry with $121 billion in assets. Hispanic American banks are not far behind with $104 billion, followed by African American banks at $5 billion and Native American banks at $2.9 billion. Forty-one percent, or 69, of FDIC-recognized minority banks are ICBA members.

Value Proposition

Minority banks work hard to build strong communities in neighborhoods historically underserved and economically distressed. According to the FDIC’s study titled Minority Depository Institutions: Structure, Performance and Social Impact, minority banks originate a larger share of mortgages to properties in low-to-moderate-income census tracts and minority borrowers than do majority banks. They finance small businesses to create jobs, make housing affordable, revitalize community facilities, and provide financial literacy and technical assistance to customers in low-to-moderate-income neighborhoods. Serving as catalysts for economic growth and revitalization, these mission-driven financial institutions have an intangible impact on the U.S. economy.

Making a difference in the community and having a positive impact in the lives of so many people is rewarding for minority banks. The ability to witness the growth of small businesses, provide credit to the unbanked and underbanked population, and build authentic and honest relationships with like-minded local customers provide minority banks with a sense of fulfillment and satisfaction.

Ensuring a Vibrant Future

Despite the constraints of their markets, minority banks use innovation and creativity to provide financial services in their neighborhoods, and their efforts should be recognized and supported more comprehensively by regulators and lawmakers.

Our Position

• ICBA strongly supports the promotion, creation, preservation and ownership of minority financial institutions consistent with Section 308 of the Financial Institution Reform Recovery Enforcement Act (FIRREA).
• ICBA’s Minority Bank Council helps to shape ICBA advocacy and solutions that benefit minority banks and the communities they serve.
• ICBA works closely with federal banking agencies, the Congress, and federal programs to improve responsiveness to minority bank needs and concerns.
• ICBA encourages collaborative relationships and partnerships between minority banks and community banks at large.
• ICBA supports the right for minority banks to be considered first for the purchase and assumption of a failed minority-owned bank consistent with section 308 of FIRREA
• ICBA supports legislation that will strengthen programs that provide capital, investments, and mentorship to minority banks and promote de novo minority banks.
• ICBA supports legislation that would create a new “Impact Designation” for banks with a specified percentage of loans extended to low income borrowers, as well as legislation to create a mentor-protege program at Treasury for larger banks to mentor MDIs and community banks under $2 billion.
• Minority-owned financial institutions should be exempt from documenting compliance with CRA regulations. A streamlined approach should be available for certified community development financial institutions.

Background

Minority owned depository institutions (“MDI” or minority banks) play a unique role serving as catalysts for economic growth and revitalization in the neighborhoods they serve. These banks often play a critical role in providing credit, capital and financial services to low-to-moderate income and minority communities in urban, rural and suburban areas that are economically distressed and have historically been underserved by the financial industry.

Minority banks know and understand the culture of the communities they serve and are able to provide customized and culturally sensitive products and services. They finance small businesses, make housing affordable, revitalize community facilities, and provide financial literacy and technical assistance to their customers.

Minority banks are committed to the social mission of helping to improve lives and stabilize neighborhoods despite the difficulties and challenges of operating in distressed communities. It is crucial that minority banks have the legislative, regulatory, and financial support they need to stay operational and profitable. Collaborative relationships or partnerships with minority banks is beneficial to all parties. Banks may receive Community Reinvestment Act credit considerations for direct investments, loan participations, sharing of bank staff and resources, and information sharing with minority banks.

ICBA supports the opportunity for minority banks to receive the first right to bid on the assets and deposits of a failed minority bank in order to preserve its minority bank character, consistent with section 308 FIRREA.

In December 2019, the House Financial Services Committee passed the Ensuring Diversity in Community Banking Act of 2019 (H.R. 5322), introduced by Rep. Gregory Meeks (D-NY), and the Expanding Opportunity for Minority Depository Institutions Act (H.R. 5315), introduced by Rep. Joyce Beatty (D-OH).

H.R. 5322 would create a new “Impact Bank” designation for banks with a specified percentage of loans extended to low-income borrowers or communities; would create measures to promote de novo MDIs; and would facilitate investment and the placement of federal deposits in MDIs.

H.R. 5315 would create a mentor-protege program at Treasury for larger banks to mentor MDIs and community banks under $2 billion. This program will help MDIs and community banks gain operational expertise and experience, ultimately helping them better serve their communities and customers over the long term and across business cycles.

Compliance with the Community Reinvestment Act. ICBA believes that CRA regulations should exempt MDIs from documentation and full-scope examinations, thereby supporting these institutions through compliance relief. The mission of MDIs is fully consistent with the CRA, and excessive compliance burden should not keep MDIs from pursing this mission.

Staff Contacts:  Kianga Lee, Rhonda Thomas-Whitley and Amy Roberti