"There is no power for change greater than a community discovering what it cares about."
As part of our Socially Conscious FI Series, today we are exploring minority owned banks. The Federal Deposit Insurance Corporation (FDIC) is one of two agencies that provide deposit insurance to depositors in U.S. depository institutions. Basically, in case of a bank failure, the FDIC covers deposits up to $250,000, per FDIC-insured bank, for each account ownership category. This means your money is safe as long as the bank is FDIC insured. All of the big banks are FDIC insured and you can verify this by going to your bank’s website, scrolling all the way down to find the disclosure information.
Along with the insurance, the FDIC also supports and tracks a list of the insured Minority Depository Institutions (MDIs) it supervises. The definition of MDI is in the next section.
I had originally written this post for informational purposes, but as I was ready to publish it, news of another death of an African American in the hands of a white police office came out. This is now a call to action. It’s important that we pursue financial independence with our values in mind. It is imperative that we not only think about our own future, but the future of the communities that we are a part of as well as the cultural backgrounds we come from.
I read this phrase somewhere in my research: “organized money is power” and it keeps ringing in my ear. Let’s think about this phrase for a second. When I first started learning about personal finance, the lack of knowledge, lack of savings and debt made me feel powerless for some time. It wasn’t until I made the conscious choice to get out of debt and save money that I started to gain confidence and power to make choices and choose opportunities that provided me greater benefits. In the context of the larger overall system, money is where power lies. We currently live in a money-based system and I honestly don’t foresee that changing in the near future. So it is up to us to shift and distribute money equally so that “power” can be distributed equitably across all communities.
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A Brief History on Minority Depository Institutions
First, a disclaimer that I am not an expert on the history of banking in the United States, especially, the history of banking for minorities. There are some amazing articles and books out there that talk about the challenges of minority banks. Partnership for Progress, a program to preserve and promote Minority Depository Institutions (MDIs) from the Board of Governors of the Federal Reserve System has a timeline of minority banking in the US as well as other resources to help smaller, minority banks thrive in the competitive economic landscape of the banking industry. With that said, minority banking continues to have it’s own challenges today, but it’s also time that we begin supporting these institutions so that they continue to thrive over the long-term which helps our communities even more.
I would encourage you to read this article as well as this book, The Color of Money (notes here), which tells an untold history of black banking in America.
Here’s some background on the FIRREA Act that helped establish Minority Depository Institutions (MDIs).
Back 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.
"Minority" as defined by Section 308 of FIRREA means any "Black American, Asian American, Hispanic American, or Native American." Section 308 of FIRREA defines "minority depository institution" as any Federally insured depository institution where 51 percent or more of the voting stock is owned by one or more "socially and economically disadvantaged individuals." Given the ambiguous nature of the phrase "socially and economically disadvantaged individuals," for the purposes of this Policy Statement, minority depository institution is defined as any Federally insured depository institution where 51 percent or more of the voting stock is owned by minority individuals. This includes institutions collectively owned by a group of minority individuals, such as a Native American Tribe. Ownership must be by U.S. citizens or permanent legal U.S. residents to be counted in determining minority ownership. In addition to the institutions that meet the ownership test, for the purposes of this Policy Statement, institutions will be considered minority depository institutions if a majority of the Board of Directors is minority and the community that the institution serves is predominantly minority.
Source (FDIC.gov)
As of 12/31/2019, there are 144 MDIs with a total of $248 billion in assets. Compare that to JP Morgan Chase total assets of $2.687trillion (2019). As of 2019, around 33 have assets over $1 billion. Source: FDIC.gov. MDIs promote the economic viability of minority and under-served communities by offering financial literacy, second chance banking and lots of other resources that help circulate the money within the community.
