FDIC teams up with Microsoft and Truist to create fund to invest in minority-owned banks

Years later the fund is ready to launch. Investors will have a new way to drive capital to two special classes of lenders known as Minority Depository Institutions and Community Development Financial Institutions, collectively known as “mission-driven” banks.

The FDIC defines an MDI as any bank it insures for which 51% or more of its voting stock is owned by minority individuals, or a majority of its corporate board are members of a minority group and the community that it serves consists predominantly of minority groups.

The Treasury Department certifies every MDI and CDFI, which must show that at least 60% of their total lending, services and other activities benefit low-income communities. As of March 2021, the FDIC insured 142 MDIs and 172 CDFIs.

Bank leaders hoping for an investment from the Mission-Driven fund will submit pitches to the committee and the forthcoming manager, who will decide whether to provide the lender with an equity investment, debt financing, loss-sharing agreements or other capital.

“Supporting mission-driven banks aligns perfectly with Microsoft’s commitments to address racial injustice and inequity,” Anita Mehra, Microsoft’s corporate vice president of global treasury and financial services, said in prepared remarks. “We look forward to the seeing the continued opportunities this will help provide for mission-driven banks and the communities they serve.”

“MDIs and CDFIs play crucial roles serving the needs of minority and rural neighborhoods, and Truist has an established history of partnering with these organizations. We’re extending this commitment through an innovative approach to capital investments and we believe this will significantly enhance these institutions’ ability to provide positive outcomes for our communities,” said Truist CEO William H. Rogers Jr.

Small community banks tend to generate a significant percentage of their available capital through customer deposits. But unlike equity ownership or debt financing, deposits can be redeemed by savers at any time and are considered liabilities on a bank’s balance sheet.

That inability to make loans can have disastrous consequences when economic conditions sour, said Michael Pugh, chief executive of Carver Federal Savings Bank, a community bank that has prioritized service to New York City’s Black communities since 1948.

During the pandemic, “41% percent of Black-owned businesses at a national level closed,” Pugh said Monday. “Many of those businesses went under because, frankly, they just did not have the access to capital to survive a catastrophic situation.”

Article source: https://www.cnbc.com/2021/09/15/fdic-microsoft-truist-to-create-fund-to-invest-in-minority-owned-banks.html