On Nov. 24, 2020, Better Markets filed a comment letter on the FDIC’s proposed, updated statement of policy regarding minority depository institutions (MDIs). MDIs serve a crucial role in bringing financial services to chronically underserved communities, particularly communities of color. The FDIC has a statutory duty to preserve and support these institutions, and we applaud the agency for proposing certain positive changes in this statement of policy. However, MDIs and the communities they serve will continue to struggle unless the FDIC, and other financial regulators, work to gain a better understanding of the challenges facing minority communities and take affirmative steps to address those issues.
MDIs often serve areas that are ignored by other depository institutions. A 2019 FDIC report on MDIs found that they tend to serve areas in which a higher proportion of residents have low-to-moderate incomes or where a higher proportion of residents are minorities and that they dedicate a greater share of their assets to originating mortgages and small business loans in those areas. By providing these services, MDIs help build wealth in disadvantaged communities and allow small businesses to thrive, providing employment and other opportunities. Put simply, promoting and protecting MDIs is synonymous with promoting and protecting the communities they serve.
The details of this policy statement, therefore, are less important than the actual actions that the FDIC takes to support these institutions. Following the financial crisis, the number of MDI charters has fallen by 31%, and MDIs were two-and-a-half times more likely to fail than other banks. Now MDIs face significant challenges as a result of the ongoing pandemic, particularly as MDI assets are often concentrated in market areas that have been hard hit by COVID-19, such as commercial real estate.
Promoting MDIs is only one part of the solution. Banking regulators, including the FDIC, must ultimately recognize that a financial system marked by unfairness and racial inequality will not be a fair, safe, sound, and stable system for all. A financial system that fuels, rather than mitigates, racial inequality will always be one that leaves too many individuals in danger of falling into the economic abyss, resulting in dire yet predictable outcomes that threaten the health of the financial system and society as a whole.
Read our full comment letter here or by clicking the button below.