As Prepare for Delivery on October 3, 2023
Thank you very much, and it’s a pleasure to see you all today. My thanks to all of you for joining us and to Chairman Harper for hosting this event.
This discussion is also a particular pleasure for me because it touches upon an issue very near and dear to my heart — the importance of our minority depository institutions (MDI) in our financial services ecosystem, and what we must do to help these vital mission-driven institutions to flourish for the long-term.
I’ll pause here to note that while our focus today is on MDIs, I suggest we also consider our low-income designated credit unions and community development financial institutions, which are equally important in meeting the needs of underserved and marginalized communities. So, while I’ll be speaking today in terms of MDIs, much of what I discuss will apply equally to those other mission-driven institutions.
Many of you may have heard me speak before about my commitment, throughout my career in financial services, to advancing the principles of financial inclusion, which I describe as “the civil rights challenge of our generation.”
If I talk about that issue a lot, it’s because it’s so important for me, and has been in many ways the organizing framework for so much of what I’ve done in my career in financial services, both in the private sector —whether it was working on affordable housing, Community Reinvestment Act issues, and so forth — and as a government regulator.
And over the course of my career, which now extends over three decades, I have seen very few mechanisms that have as significant an impact on advancing financial inclusion as MDIs.
I like to describe MDIs as the “financial first responders” for our underserved communities. That might sound like a rhetorical flourish, but think about the qualities we associate with first responders:
- They’re mission-focused, with a sense of clarity and direction as to their purpose,
- They’re responsive to the urgent needs of the moment, working under some of the most difficult circumstances imaginable, and
- They’re resilient, prepared to bounce back even when things get challenging.
Those same qualities describe, quite aptly, the role of MDIs, which serve as a financial lifeline and help to keep hope alive in some of our most hard-pressed communities. Without MDIs, I think it’s safe to say a lot of places across the country where other financial services providers have pulled out, would be virtual financial deserts. Moreover, as we’ve grown more aware of the need for greater diversity, equity, and inclusion throughout our society, MDIs play a critical role in ensuring that the principles of DEI are embodied in the provision of financial services at the ground level.
However, I believe we all recognize the reality that smaller and mid-sized institutions are more vulnerable today than in the past, due to the realities of a highly competitive marketplace and an uncertain economic climate. For example, earlier this year, we had some rumblings of a potential banking crisis, when in March, we saw several institutions fail in just a matter of days. Fortunately, that situation was contained before it could reach crisis levels, thanks to swift and decisive action from the Federal Reserve, regulators, and industry leaders. However, one side effect of those failures was a flight of capital from some smaller and regional institutions due to depositor anxiety.
Meanwhile, we’ve also had forecasts of a recession, though that has yet to materialize, thankfully. But one thing we all recognize is that at some point, we will face more serious economic headwinds. And when that should happen, we need to be alert to the potential effect it may have on smaller and mid-sized institutions in general and MDIs and low-income institutions in particular.
After all, we all know what happened in the community banking sector after the 2008 crisis, with so many local branches disappearing. Some failed, and others were acquired by or merged with larger institutions. While these smaller institutions bore little or no responsibility for the crisis, they paid a heavy price, as did the communities they served. And we’re still paying that price, with many communities now lacking options for affordable financial services.
When we lose those smaller and mid-sized institutions, we lose diversity and competition within the financial services system, which is detrimental to the needs and interests of consumers and communities. That is why I believe we need to be talking about ways to shore up and protect those financial services providers and particularly those institutions, like MDIs, that serve marginalized and underserved communities.
Now, to be clear, that does not mean propping up weak or failing institutions just for the sake of propping them up. As you all know, I’m dedicated to the principles of the free market system. But a healthy financial ecosystem needs smaller institutions, particularly if our goal is financial inclusion and extending access to financial services more broadly to underserved communities. So, the question is, how do we best ensure that smaller and mid-size financial providers, and particularly our financial first responders like MDIs, can flourish in this challenging environment?
First, from a policymaking standpoint, regulators and lawmakers must focus on shoring up small institutions through the policy and rule-making processes. You all know this has been my priority as a regulator, and that my outlook is that regulation needs to be effective without being excessive. Again, I’m not saying we will disregard performance to protect every small and medium-sized institution at all costs. But I do try to be attuned to ways to address the regulatory burden that gives institutions the flexibility they need to compete in this very challenging marketplace. In the case of MDIs, we also have some outstanding tools at our disposal, including mentorship grants and technical support, which can make a considerable difference in ensuring these institutions flourish in the long term.
I also encourage MDIs and credit unions in general to explore the possibilities of financial technology, like mobile banking and online applications, to make the lending process faster, more cost-effective, and more efficient. These tools will make it possible to provide affordable, quality service to more members without compromising lending standards or loan quality. Moreover, more effective integration of fintech will go a long way toward meeting the expectations and needs of the rising generation of young consumers.
That said, we should recognize that fintech is a difficult area for local institutions to navigate on their own, which is why we’ve been providing as much support and guidance as we can at the regulatory level. Under my chairmanship, we established the Office of Innovation and Access, and just last month, the NCUA Board approved a new financial innovation rule. Once again, I’d like to give a nod to Chairman Harper for his leadership in making that rule a reality. Both of those steps will go a long way to providing credit unions with greater clarity and flexibility in how they engage with fintech companies and loan participations.
And third, commitment is critical. Over the last few years, since the George Floyd tragedy in 2020, we’ve seen a growing awareness and appreciation of the vital role that MDIs play in the financial services system, with substantial investment on the part of the government and the larger financial industry. I hope we can maintain that level of commitment. That’s why events like this are so important and why it’s gratifying to see so much outstanding participation. My great hope is that everyone will walk away from today’s event with a reinforced commitment to acting on behalf of MDIs to ensure that these vital institutions are well-fortified to continue working on their mission of service.
You know, when we talk about MDIs, we often talk about their performance in terms of statistics. But let’s also remember that those performance numbers are built on a foundation of stories about real people who are solving problems and addressing needs in their communities every day.
For example, last year, the NCUA approved a new charter for a minority-led institution in North Little Rock, Arkansas, the People Trust Credit Union (opens new window) (You will be leaving NCUA.gov and accessing a non-NCUA website. We encourage you to read the NCUA's exit link policies. (opens new page).) . This credit union has a rather remarkable origin story. It was founded by a local gentleman who started his career as a barber and later went on to establish a barber college. He saw that some of his students needed financial help, so he started a non-profit loan fund to help people in his community get loans and build up their credit scores. After the Department of Treasury certified that fund as a community development financial institution, he then took the next step of launching a credit union to provide a fuller array of financial services. That’s a remarkable story of someone seeing a need in the community and taking action to create opportunities for others.
Or consider the example of Hope Credit Union in Jackson, Mississippi. During the height of the COVID-19 pandemic, they distributed something on the order of 4,000 loans under the Paycheck Protection Plan, providing a critical lifeline to various small businesses and other entities at a time of tremendous urgency and uncertainty. One of the beneficiaries of those loans was a historically black college that was having difficulty securing the funding they needed from their financial institution. Hope Credit Union stepped in and provided them with the loan support they needed.
These are just a few examples that come to mind, but I certainly hope we’ll hear more of these kinds of stories today because they are so important to remind us of the important work MDIs are doing in their communities every day. So, we need to be doing all we can to preserve these invaluable institutions.
Although now, that I think about it, I would encourage everyone to think beyond the mission of simply “preserving” MDIs, which sounds almost defensive. Here I’ll borrow a line from a great American poet, the late Maya Angelou, who memorably said, “My mission in life is not merely to survive, but to thrive.” We want the same for our MDIs. If we take one thing away from this event, I hope it will be a newfound commitment to not only preserving MDIs but to fortifying these institutions and helping them to extend their reach and expand their impact more broadly.
Thank you once again for joining us today.