The 2013 Interagency Minority Depository Institution and CDFI Bank Conference
Opening Keynote Address
Martin J. Gruenberg, Chairman, FDIC
Good morning. Welcome to Washington. It is good to be with you all again. I had the opportunity to meet many of you last year at the Community Banking Initiative Roundtables we held across the country and, recently, at the NBA Legislative Conference here in Washington.
Today and tomorrow, we look forward to hearing your perspective as Minority and Community Development Bankers. Your role in today’s panel discussions, and tomorrow’s interactive roundtables, will help us explore how we can all work together to help preserve minority institutions.1
Thank you for joining us.
Minority and CDFI banks play a vital role. Minority bankers have been serving the needs of their communities, in some cases, for nearly 125 years. Your mission is important. You provide responsible banking services to those who might not otherwise have access to a bank. And, you serve some of the most challenging markets in the country.
As an industry, you have been determined and resilient, facing numerous difficult periods over the years, including the recent recession. Even though we are now hearing some good news -- declining unemployment, the recovering housing market, and growing consumer incomes -- we know that in many of the communities you serve, the pace of recovery is lagging. And so, we know that you may continue to face challenges with: earnings, asset quality, narrow margins and access to capital. Yet many of you have withstood the challenges of these difficult times and are now beginning to turn the corner. We hope to foster that momentum.
One way we think we can contribute to your efforts is by conducting research specifically on MDI and CDFI institutions – to better understand the role they play in our financial system and in our communities, and what types of challenges they face in the post-crisis environment. Rich Brown, the FDIC’s Chief Economist, will provide an overview of our results this afternoon, and we plan to release a paper summarizing these results in the coming months.
The framework for our analysis is similar to the one we applied to community banks in the study we released last year. It seeks to provide a factual, data-driven foundation that can help to inform policy discussions in the future. We will certainly be interested in discussions at this forum that can help to inform our work. I thought I would take a few moments now to share with you some preliminary findings that caught my attention.
First, I think it is fair to say that MDIs are a relatively small segment of the overall banking industry. They represent 2.6 percent of bank charters and 1.2 percent of industry assets (at the end of last year). But, they are extremely important to the communities they serve.
In June of last year, over half of all MDIs were located in the four most populous states – California, Texas, New York and Florida. Eighty-eight percent of MDIs were headquartered in a metropolitan statistical area or “MSA.” (There are 374 MSAs which are home to about 84 percent of the U.S. population). They are especially prominent in some of the nation’s largest cities, led by Los Angeles, New York, Miami, Chicago, Atlanta and Houston.
MDIs held just 1.5 percent of all metro-area deposits in 2012. But, in 5 metro counties with a population over 250,000 each, they held more than 20 percent of deposits. And, notably, in both Los Angeles County and Miami-Dade County, with combined populations of 12 million, MDIs held more than 9 percent of all deposits.
From the location of their banking offices, we know that MDIs are more likely to do business with low- or moderate-income, or “LMI,” households than other banks. In 2011, the median MDI covered an area where 46 percent of the population lived in LMI Census tracts. In fact, the LMI share serviced was more than 2.7 times greater than that of non-MDI community banks. African-American MDIs have been particularly successful in reaching LMI populations. About two thirds of the people in the estimated service area of the median African-American MDI reside in LMI Census tracts.
We also know from the HMDA data that MDIs are much more likely than non-MDIs to make mortgage loans in LMI Census tracts. Again, African-American MDIs led the field here, with the median institution making about 52 percent of its mortgage loans in LMI tracts in 2011.
MDIs are also highly effective in making mortgage loans in their minority communities. In 2011, the median African-American MDI made 67 percent of its mortgage loans to African-American borrowers. The median Hispanic MDI made 65 percent of its mortgage loans to Hispanic borrowers. And, the median Asian-American MDI made 57 percent of its mortgage loans to Asian-Americans. By contrast, the median non-MDI lender made less than one percent of its mortgage loans to each of these three groups.
This is not to say that MDIs don’t face a number of challenges. As a group, they have tended to underperform other groups of institutions by standard measures of profitability. They have had to set aside large provisions for loan losses over time – consistent with the economic challenges that their customers have faced in recent years. And expense ratios have been especially high for the smallest MDI charters – those with assets less than $100 million – many of which serve African-American, Native-American, and multi-racial populations.
As a result of these and other challenges, 51 MDIs voluntarily merged out of existence during our 12-year study period, while another 31 failed. Overall, the failure rate for MDIs was about three times higher than it was for the industry as a whole.
Nonetheless, the absolute size of the MDI sector grew in terms of both number and assets during the study period. Forty-four new MDIs were chartered, while the number of institutions moving to MDI designation outnumbered those leaving MDI status by more than 4 to 1. Amid these changes, I would like to emphasize that we have continued efforts to enhance the MDI sector. While a slight majority of the MDIs that merged or failed during our study period were acquired by non-MDIs, almost two-thirds of the assets of the merged institutions and 87 percent of the assets of the failed institutions wound up staying with MDI acquirers. And, we remain committed to do what we can to preserve the minority character of these institutions in cases of merger and acquisitions going forward.
The FDIC’s MDI Program
I know that you are familiar with the FDIC’s minority bank program. During this past year, the FDIC appointed a permanent dedicated executive to lead the program. I’d like to thank Bob Mooney for his passion and leadership in this role, as National Director of Minority and Community Development Banking. And, I’d also like to acknowledge Doreen Eberley, our new Director of the Division of Risk Management Supervision, who also has a track record as a strong advocate for our MDI program, both as the Director of our New York Region and now as the Division Director.
Under their leadership, we are supporting increased collaboration among Minority banks and, in particular, with larger institutions. And, we are seeking to strengthen our technical assistance and outreach programs. You have a special purpose, one that deserves special consideration. For this reason, we value the dialogue we had at our regional MDI roundtables last year - and that we will have during this conference. It is important that we hear your comments about the examination process and rulemakings. In that regard, I want to thank you for the time you took to submit comment letters on our recent capital proposals and the specific impact they would have on minority and CDFI banks in particular. Your comments are helpful and will enable us to craft a more balanced approach.
Let me conclude by saying that the community banking sector, overall, and minority banks, in particular, are at a unique juncture in their history. The nation’s demographics are changing. New technology is opening new doors for underserved consumers. And, competition from non-bank financial service providers grows. But these challenges create opportunities for community and minority banks. The FDIC has begun to explore some of these at the suggestion of our Advisory Committees on Community Banking and Economic Inclusion. Some of our Advisory Committee members are minority and CDFI bankers – and I am pleased to see a few of you here today – who are participating in these forward-looking activities. We would like to work together to develop partnerships that tap into these opportunities.
I know that several of you have started exploring new ways to collaborate with one another. You are beginning to discuss how MDI and CDFI bankers might work together to develop business models to share the effort - and reduce the costs - for activities in several critical areas (such as information technology, capital raising, asset disposition, compliance management, and the development of affordable but profitable products, services and delivery systems). I hope this conference enables you to build on these collaborative strategies for success.
I look forward to working with you to ensure a vigorous minority and community development banking sector – one that continues to be a source of hope and financial progress for minority communities.
1 In August, 1989, Congress enacted the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). Section 308 of FIRREA established the following goals: preserve the 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.