Minority Banks: Ensuring a Vibrant Future

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”; or
  • “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 142 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 $16 million to $56 billion, with total assets of $299 billion; however, 106 of these banks are under $1 billion in assets.

MDI Chart

There are 72 Asian American banks, 30 Hispanic American banks, 20 African American banks, 18 Native American banks and 1 multi-racial American bank. Asian American banks lead the minority bank industry with $157 billion in assets. Hispanic American banks are not far behind with $129 billion, followed by African American banks at $5.8 billion, Native American banks at $6.3 billion and multi-racial at $253 million. Forty-seven percent, or 66, 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.

ICBA Minority Bank Advisory Council Opposes IRS Reporting Proposal

ICBA Press Release Banner 2020

Indiscriminate Account Reporting Undermines Outreach to Unbanked

Washington, D.C. (July 12, 2021) — The Independent Community Bankers of America’s (ICBA) Minority Bank Advisory Council today expressed strong opposition to the Biden administration’s proposal that would require banks to report customer account information to the IRS.

The administration’s fiscal 2022 budget proposal would require banks and other financial institutions to report to the IRS on the deposits and withdrawals of all business and personal accounts with a balance of more than $600. In a joint letter to congressional leaders, the coalition of minority depository institutions warned that this plan conflicts with the goal of bringing unbanked Americans into the banking system.

“Our primary concern is that the proposal would undermine the critical relationship of trust we foster within the communities we serve—communities prone to distrust of institutions and government agencies,” the council wrote. “Invasive and indiscriminate account reporting would undermine the policy priority of bringing more people into the banking system and may drive many of those in the system to leave.”

In the letter, the group said:

  • Minority banks play a critical role in creating inclusive prosperity, building trust, and reaching the unbanked in minority and low-income communities.
  • The reporting plan would indiscriminately cover the accounts of nearly all Americans.
  • The costs of implementing an expansive new reporting regime would be better allocated in deploying resources to local communities.
  • Account reporting would increase taxpayer complexity, raise barriers to compliance, and create erroneous filings.

More information is available in a recent ICBA fact sheet on the proposal.

About ICBA

The Independent Community Bankers of America creates and promotes an environment where community banks flourish. ICBA is dedicated exclusively to representing the interests of the community banking industry and its membership through effective advocacy, best-in-class education, and high-quality products and services.

With nearly 50,000 locations nationwide, community banks constitute 99 percent of all banks, employ more than 700,000 Americans and are the only physical banking presence in one in three U.S. counties. Holding more than $5 trillion in assets, over $4.4 trillion in deposits, and more than $3.4 trillion in loans to consumers, small businesses and the agricultural community, community banks channel local deposits into the Main Streets and neighborhoods they serve, spurring job creation, fostering innovation and fueling their customers’ dreams in communities throughout America. For more information, visit ICBA’s website at www.icba.org.