ADVOCACY

Minority Banks

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

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

Minority Banks ChartHistorically, 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.

Numbers Tell the Story

While Section 308 of the Financial Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA) includes provisions to help minority institutions grow and retain their distinct characteristics, the overall number of minority banks has continued to decrease in recent years.

Since the financial crises in 2008, 18 African American banks, 18 Hispanic American banks, 26 Asian American banks, 3 Native American banks and one multi-cultural bank have closed or merged with another bank, for a total of 66 minority banks. Meanwhile, few de novo banks have been established since the financial crisis to replace those that have closed.

Minority banks are small businesses themselves and are in need of capital to expand and continue lending. The high cost of operating in communities where education and per capita income is disproportionate to loan demand further challenges their ability to survive and attract customers that meet the regulatory agencies’ lending guidelines.

Minority banks also face the challenge of recruiting and retaining qualified employees, which is exacerbated by the exodus of many recent graduates lured away by better jobs and opportunities.

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 Section 308 of the Financial Institution Reform Recovery Enforcement Act (FIRREA), which establishes goals for federal banking agencies to promote, create, and preserve the number and character of minority depository institutions (MDIs).
  • ICBA will advocate for adjusting regulations to take into account the unique model of minority banks and the communities they serve.
  • ICBA supports giving minority banks the first right to bid on the assets and deposits of a failed minority bank and giving them greater consideration or weighting over non-MDI bids.
  • ICBA appreciates the federal banking agencies efforts to encourage collaborative relationships and partnerships between minority banks and community banks at large for financial support, lending activities, or technical assistance.
  • ICBA supports legislation that would create and strengthen federal programs that provide capital, investments, technical assistance, and mentorship to minority banks, promote de novo minority banks, create a new “Impact Designation” for banks with a specified percentage of loans extended to low-income borrowers, streamline the CDFI certification process for MDIs, and otherwise help MDIs better serve their customers and communities.
  • ICBA supports the exemption of minority depository institutions from documenting compliance with CRA regulations. A streamlined approach should be available for certified community development financial institutions.
  • ICBA supports and encourages opportunities for minority banks to partner with private sector entities for investment, technical assistance, and product/service discounts. ICBA also supports additional resources and education programs that focus on areas unique to minority banks.

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. ICBA will promote legislation to help existing MDIs serve their communities, grow, and thrive as well as to foster the creation of new MDIs.

ICBA will work with the OCC, FDIC, and the Federal Reserve to improve their minority bank programs and identify opportunities for minority banks to collaborate or partner with larger community banks or private entities. 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 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.

Topics and Resources

Staff Contacts

Kianga Lee

Vice President, Administrative Operations

Washington, D.C.

Email

Rhonda Thomas-Whitley

Vice President, Regulatory Counsel

Washington, D.C.

Email

Amy Forester Roberti

Vice President, Congressional Relations

Washington, D.C.

Email

News Articles

May 6, 2021 | NewsWatch Today Article

Treasury extends MDI, CDFI program

Mar 10, 2021 | NewsWatch Today Article

Joint rule supports Treasury program for CDFIs, MDIs

Mar 5, 2021 | NewsWatch Today Article

Treasury launches $9B CDFI, MDI program

Feb 22, 2021 | NewsWatch Today Article

Minority bank webinar on evaluating capital opportunities

Letters

Title Recipient Date
116th Congress 08/18/20
U.S. House of Representatives 08/17/20

Testimony

Title Committee Presenter Date
Committee on Financial Services, Subcommittee on Consumer Protection and Financial Institutions James H. Sills, III 06/03/20
House Financial Services Committee's Subcommittee on Consumer Protection and Financial Institutions Jill Sung 10/22/19