Federal regulators are about to get an earful from minority bankers.
Upon a recommendation from the Government Accountability Office, three of the four federal banking regulators plan to survey minority bankers — particularly at African-American-owned banks — to find out what can be done to help banks they supervise perform better.
Executives at these banks say they plan to ask regulators to be more flexible with capital requirements and more consistent in their Community Reinvestment Act examinations.
Robert Patrick Cooper, a senior vice president and the general counsel at the nation’s largest African-American bank, the $638 million-asset OneUnited Bank in Boston, said examiners sometimes give large banks CRA credit for making deposits in minority banks, and sometimes they do not.
Because big banks cannot count on getting credit for these deposits, they often will go into low-income areas and “cherry pick” loans for which they know they will get credit, Mr. Cooper said. If the rules were clearer, big banks might be content simply making deposits in minority-owned banks and leaving the loans for banks like OneUnited, he said.
“Minority banks are on the front lines, while [large] banks can make loans in the community, get their CRA rating, and move on,” Mr. Cooper said. “It’s absurd that any minority bank would receive a lower rating than a [large] bank that just lends to the area.”
Since 1989 federal laws have required regulators to help minority banks become more profitable by offering technical assistance whenever the banks ask for it.
But a GAO report released in October found that many of these banks — which generally do not perform as well as mainstream ones — are not asking for advice, and the GAO has asked regulators to find out why.
It also concluded that regulatory agencies need to educate examiners on the roles minority banks play in their community and help them understand the environments in which they operate.
The Federal Deposit Insurance Corp., the Office of the Comptroller of Currency, and the Office of the Thrift Supervision have pledged to survey the minority banks they supervise to find out what they, as regulators, can be doing better.
“We are now, as a result of this study, conducting surveys with bankers at roundtables,” said Sandra Thompson, director of supervision and consumer protection with the FDIC. “The point of the survey is to measure our success. I think we have a very good program, and if there are suggestions the institutions can make, we want to hear about them.”
In comments the Federal Reserve Board contributed to the report, it did not commit to surveying the 21 minority banking companies it supervises, saying only that it would consider doing so. A Fed spokeswoman would not comment further.
The GAO report examined regulators’ compliance with Section 308 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, which requires the OTS and the FDIC to create technical assistance programs to ensure minority banks remain healthy and relevant. The Fed and the OCC have created their own technical assistance programs, and the results of their efforts were included in the October report.
The report found that African-American banks with less than $100 million of assets, a group that includes 61% of all black-owned banks, struggle the most among minority banks. Their average return on assets is about 0.16%, compared with 1% for nonminority banks in that asset class, the report said.
James Young, the acting chairman for the National Bankers Association, a black banking group, and chief executive of the $330 million-asset Citizens Trust Bank in Atlanta, said inner-city banks face immense challenges raising capital and competing for talent and qualified CRA loans.
Still, he said that regulators have come a long way in meeting the needs of minority banks, and that he expects the lines of communication to improve even more in response to the GAO report.
“The benefit of the report is it will open new avenues of dialogue with regulators on topics other than regulatory compliance.”
Mr. Cooper said he plans to use the opportunity to advocate for change in capital requirements.
The rules require voting stock to be the predominant form of capital, but minority banks in low-income communities simply cannot raise as much capital from shareholders there and would lose their minority status if they raised too much capital from nonminority shareholders, he said.
(Minority status makes these institutions eligible for deposit programs that encourage federal, state, and local governments to deposit funds in them.)
Mr. Cooper’s solution is to let banks like his raise more capital from nonminorities.
The FDIC regulates the most minority-owned banks and thrifts — 109 of the 195 in the United States. The GAO concluded that the agency has been the most proactive in reaching out to minority institutions and praised it for leading the coordination of interagency activities and having the most comprehensive outreach efforts, including a Web site, regional roundtable discussions, and minority-focused conferences.
One struggling minority bank that has taken the FDIC up on its offer of one-on-one technical assistance was American State Bank in Tulsa.
The $12 million-asset Native American-owned bank serves an African-American community. Billy Blount, its president and CEO, said that an FDIC official met with him and his board to discuss what the bank needs to do to be successful. But he said that no matter how much support regulators offer, it is still primarily up to the individual banks to find a way out of problem situations.
“This particular bank has two problems — lack of capital, and we are in a low-income area with no growth,” he said.
The bank is looking into ways to raise more capital, but the most practical solution might be for the bank to open a branch in a growth area, Mr. Blount said.
