Recent Webinar Highlights Latest Research on The MDI Sector

MDI banker helping couple with their mortgage

On August 2, 2023, the National Bankers Association co-hosted a webinar with John Hopkins University’s 21st Century Cities Initiative on Financial Inclusion and The State of The Minority Banking Sector. The event included a presentation of findings from our latest report on the MDI sector and a panel discussion on financial inclusion, wealth-building, and the role of minority financial institutions.

We were pleased to be joined by the following participants:

-Anthony Barr, Research and Impact Director, National Bankers Association

-Amine Ouazad, Associate Professor, Department of Finance and Economics, Rutgers Business School

-Kristen Broady, Senior Economist, Economic Advisor and Director of the Economic Mobility Project, Federal Reserve Bank of Chicago

-Mac McComas, Senior Program Manager, Johns Hopkins' 21st Century Cities Initiative

-Michael Neal, Principal Research Associate, Housing Finance Policy Center, Urban Institute

-Rey Garcia, Strategic Growth Officer, Texas National Bank

-Tonantzin Carmona, David M. Rubenstein Fellow, Brookings Metro

Webinar panel

Event Summary:

Presenters Mac McComas (Johns Hopkins) and Anthony Barr (National Bankers Association) revealed statistics around the rise in assets and deposits for the minority depository institutions (MDI) sector in the last decade; the decline in the number of MDIs due to mergers, acquisitions, and bank failures; and the ongoing significance of MDI branches in underserved communities, with 25% of branches found in zip codes where it is the only bank present. They also showed data on the elevated climate risk in places where MDIs are located and provide lending relative to the overall nation.

During the research discussion and panel conversation, participants highlighted several key themes, including the importance of building trust in the banking system, solutions to the racial homeownership gap, innovative ways to provide credit and capital to borrowers with thin credit files or other challenges, and what the emergence of fintech, cryptocurrency, and other forms of technology mean for minority banks and the customers they serve.

Panelists agreed that digitalization should be a high priority for minority banks to help achieve more efficiency through economies of scale and deepen the social impact. Michael Neal (Urban Institute) noted that his research indicates minority financial institutions are often behind on the digital curve and emphasized that this can hinder their ability to serve communities. Encouragingly, some MDIs have found that digitalization is helping them extend their mission-based lending. As an example, Rey Garcia explained how his MDI (Texas National Bank) uses technology to demonstrate ability to repay based on bank account data, thereby letting the bank provide unsecured loans to borrowers who might otherwise be forced to turn to payday lenders.

But while digital innovation in the financial services space holds lots of promise, it can also bring risks too. Tonantzin Carmona (Brookings Metro) warned that crypto and other speculative ventures may subject vulnerable households to even greater market risk. At the same time, Kristen Broady (Chicago Fed) noted that automation and AI could help improve efficiency, including for minority-owned firms. Still, it may disproportionately displace workers of color if its impact is not mitigated. Finally, participants emphasized that even amidst digital transformations in finance banking, there is still great value in brick-and-mortar presence. Amine Ouazad (Rutgers) observed that “Relationship banking is important in the 21st century. The internet has not made face-to-face banking irrelevant.”

3 Key Takeaways:

1. The current evidence is clear that MDIs continue to reach underserved communities and households and are vital anchor institutions for government, philanthropy, and private sectors to partner with in facilitating community development and economic mobility.

2. Given the outsized impacts of climate change on minority and low-income communities, it is vital that MDIs are on the frontlines of climate-based financing. Similarly, given how well MDIs deployed Paycheck Protection Program loans to at-risk communities, the sector should be centered in all future fiscal responses to economic downturns.

3. More research is welcome and needed to deepen our understanding of the sector even more. Future research should explore causal effects through regressions, incorporate more qualitative insights, and should try to incorporate longitudinal data when possible.

Watch a recording of the webinar below:

Financial Inclusion and The State of The Minority Banking Sector - YouTube

A copy of the presentation slides is available here:

Additional research mentioned in the webinar:

· Our new report with the National Bankers Association and the focus of the webinar “Minority Depository Institutions: State of Knowledge, Sector Summary, Lending Activity, and Impact, 2010 – 2022” by Anthony Barr and Mac McComas

· “An analysis of financial institutions in Black-majority communities” by Kristen Broady, Amine Ouazad, and Mac McComas

· “The Covid-19 Pandemic Spurred Growth in Automation: What Does this Mean for Minority Workers?” by Kristen Broady, Anthony Barr, et al.

· “Boosting the Technological Infrastructure of Black Minority Depository Institutions Is Critical” by Michael Neal et al.

· “The Potential and Limits of Black-Owned Banks” by Michael Neal and John Walsh

· “Understanding Latino wealth to address disparities and design better policies” by Tonantzin Carmona

· “Debunking the narratives about cryptocurrency and financial inclusion” by Tonantzin Carmona

Case Study on how Texas National Bank is pursuing digitalization in service to its mission:

Community bank, loan marketplace pilot transaction-based underwriting | American Banker