10/22/2019 - An Examination of the Decline of Minority Depository Institutions...(EventID=110111)

Video Description

Tuesday, October 22, 2019 (2:00 PM) -- Hearing: An Examination of the Decline of Minority Depository Institutions and the Impact on Underserved Communities Connect with the House Financial Services Committee Get the latest news: https://financialservices.house.gov/ Follow us on Facebook: https://www.facebook.com/FinancialDems/ Follow us on Twitter: https://twitter.com/FSCDems ------ This will be a single-panel hearing with the following witness: • Kenneth Kelly, Chairman and CEO, First Independence Bank, and Chair, National Bankers Association (NBA) • Jill Sung, CEO, Abacus Federal Savings Bank, and Chair, Independent Community Bankers Association’s (ICBA) Minority Bank Council • Mara Falero, Vice President of Marketing and Communication, Jetstream Federal Credit Union, representing the National Association of Federally-Insured Credit Unions (NAFCU) • Jeff Bowman, President and CEO, Bay Bank • Aron Betru, Managing Director, Center for Financial Markets, Milken Institute Overview On February 13, 1865, a bill to incorporate a bank to serve freed slaves was introduced in Congress and "An Act to Incorporate the Freedman's Savings and Trust Company" was signed into law by President Abraham Lincoln on March 3, 1865. MDIs have a long history in the United States. MDIs peaked in terms of number of institutions in 2008, at 215 institutions. However, following the financial crisis and the disproportionate impact of the housing crisis and recession on minority communities, the number of MDIs fell 31% over the following decade, to 149 at yearend 2018. According to the Federal Deposit Insurance Corporation (FDIC), MDI banks were 2.5 times more likely to fail than all other banks, with most of the failures happening during the crisis, or immediately thereafter. Meanwhile, MDI credit unions have seen similar declines, with more than one-third of such institutions disappearing since June 2013. Minority-Owned Banks and Credit Unions Section 308 of the Financial Institutions Reform, Recovery, and Enforcement Act of 198 (FIRREA) requires that banking regulators: preserve the present number of minority depository institutions; preserve the minority character in cases of merger or acquisition; provide technical assistance to prevent insolvency of institutions not now insolvent; promote and encourage creation of new minority depository institutions; and provide for training, technical assistance, and educational programs. The FDIC Policy Statement defines MDIs as “any Federally insured depository institution where 51 percent or more of the voting stock is owned by minority individuals” or any such institution where “a majority of the Board of Directors is minority and the community that the institution serves is predominantly minority”. The term “minority” means any “Black American, Asian American, Hispanic American, or Native American”. The composition of MDIs has changed over the past 2 decades, with a notable near-disappearance of black MDIs over this period, and the rapid emergence of Asian MDIs, as illustrated in Figures 1 and 2 in the appendix below. Today, MDIs represent 2.8% of FDIC insured banking charters, 1.3% of assets, and 1.7% of banking offices. By comparison, MDI Credit unions represent a 10% of all federally insured credit unions, although they tend to be smaller than their peers, with 87% of MDI credit unions reporting total assets of $100 million or less. According to the National Credit Union Administration (NCUA), MDI credit unions “underperformed in all growth categories – including assets, membership, shares, loans, and net worth – compared to low-income credit unions, small credit unions, and federally insured credit unions overall.” Community Development Financial Institutions The Community Development Financial Institutions (CDFI) Fund is an agency of the U.S. Treasury Department, and was established by the Riegle Community Development and Regulatory Improvement Act of 1994. The mission of the CDFI Fund is “to expand economic opportunity for underserved people and communities by supporting the growth and capacity of a national network of community development lenders, investors, and financial service providers.” A CDFI is a “specialized financial institutions serving low-income communities,” and a CDE is “a domestic corporation or partnership that is an intermediary vehicle for the provision of loans, investments, or financial counseling in low-income communities.” The CDFI Fund certifies CDFIs and Community Development Entities (CDE). Becoming a certified CDFI or CDE allows organizations to participate in various CDFI Fund programs as follows: 1. Bank Enterprise Award (BEA Program): provides FDIC-insured depository institutions awards for a demonstrated increase in lending and investments in distressed communities and CDFIs. 2. CDFI Program: provides Financial and Technical Assistance awards to CDFIs to invest in, and build their capacity, including product development and loan loss...