How Can the Industry Preserve Minority Depository Institutions?

Preserving the industry’s minority depository institutions is not just a goal for NCUA Chairman Rodney Hood, it’s his mission. But that mission will be undoubtedly arduous. Despite the NCUA’s efforts over the years to help preserve MDIs, their numbers keep declining through mergers.

Notwithstanding this seemingly insuperable trend, Hood said preserving MDIs is critically important because of the agency’s and the industry’s multifaceted commitments to address racial inequalities, which include expanding access to financial products and services for minorities.

“The COVID-19 pandemic has really uncovered a lot of economic inequality that’s taking place notably in communities of color. I think the George Floyd tragedy also illustrated the economic and also the lack of justice equitably pursued in all of our communities, especially those of communities of color,” Hood said in an exclusive interview that will be featured in an upcoming issue of CU Times.  “So the issues of COVID-19 and George Floyd really just made a lot of us recognize that if we’re ever going to be able to address a lot of these intractable issues, it’s going to be from my point, providing access to affordable financial services.”

The NCUA’s annual report to Congress, released in June, about the condition of the industry’s minority depository institutions had some good news and some bad news.

The good news was that the financial performance metrics for the industry’s MDIs showed strong growth in 2019 with ample gains in assets, loans, members, shares and deposits.

The bad news was that the years-long trend of the declining number of MDIs continues unabated.

At the end of last year, there were 514 MDIs, which is down from the 626 that were primarily serving minorities in 2015. The drop is largely blamed on consolidation.

Hood’s interview revealed that he is working with his peers at the Office of the Comptroller of the Currency and FDIC to connect fintechs with credit union and community bank MDIs to help them deliver digital banking services to meet consumers’ needs.

However, industry leaders who work with MDIs said there needs to be industry-wide collaborative initiatives by large credit unions, the NCUA and trade groups, which could help save MDIs from being merged out of existence.

Pablo DeFilippi, SVP of membership and network engagement for Inclusiv in New York City, pointed out that even though most MDIs are small, some have managed to avoid a merger because they serve niche markets.

“What they need is the tools and the know-how to capitalize on those niche markets and others,” he said. “For sure it’s about knowing your market and that’s something that MDIs know so well and that’s why if we lose them, we lose a huge touchpoint with these communities.”

For more insights on preserving MDIs, read the Aug. 26 print edition of CU Times.