Businesses owned by Black people were hit especially hard by the coronavirus pandemic because of a combination of geography, limited reach of a key federal aid program and weaker ties to banks, a new report from the Federal Reserve Bank of New York finds. This report offers “some pretty compelling evidence about the coincidence of the health crisis and business crisis in places that have high concentrations of Black businesses and Black residents,” said Claire Kramer Mills, assistant vice president at the New York Fed. “To have the greatest impact, the next round of Covid-19 relief should be more targeted geographically to focus on the hardest-hit areas and communities that lack critical infrastructure (hospitals, banks) to ameliorate the gaps,” the report said.
Black banks support Black communities, lending mostly to Black homebuyers and maintaining community lending even in tough economic times. Recent interest in supporting these institutions is a welcome and positive step. But their small sizes and declining numbers mean that today, they cannot tackle the problem of capital access in predominantly Black neighborhoods by themselves. To bring greater capital to communities of color, our recent study on the benefits and limits of Black banks suggests a two-pronged approach: increase capital to Black banks, and adopt policies that support community development financial institutions (CDFIs) more broadly.
Morgan Stanley announced $14.6 million to support long-time partner Carver Bancorp, Inc., one of the nation's largest Minority Depository Institutions (MDI). Morgan Stanley's grant enabled Carver to buy back shares and bolster its capital position to help weather the economic impact of COVID-19 in the wake of the pandemic. In addition, the grant will help the bank assist small businesses and customers that were affected by COVID-19, particularly those that did not receive federal relief loans. Previous commitments Morgan Stanley has made include $10 million in grants to support Minority Depository Institutions (MDIs) including Industrial Bank of Washington, D.C.
The Community Development Bankers Association and Inclusiv, the national trade associations for the CDFI bank and credit union sectors, respectively, sent a letter to the U.S. Senate Committee on Banking, Housing, and Urban Affairs last week signalling their strong support for the Jobs and Neighborhood Investment Act (S. 4255). The bill redirects $17.9 billion of $500 billion in funding already appropriated by Congress under the CARES Act for the U.S. Treasury to support emergency economic relief to CDFIs and MDIs.
First Federal Bank of Wisconsin plans to purchase Mitchell Bank. FFBW Inc., is the Brookfield-based parent company of First Federal. In an announcement this week, the bank said it entered an agreement to buy in cash the assets and assume the liabilities of Mitchell Bank. The purchase price is expected to range from $4.7 million to $4.9 million, a regulatory filing shows. According to the announcement, First Federal will take over about $44 million in customer deposits and $17 million in loans from Milwaukee-based Mitchell. As of March 31, First Federal held $278 million in total assets.
"The more you [run a community bank in the Bronx] the more you see the lack of inclusion is baked into stuff," says Demetris Giannoulias, the Chicago-born co-founder and CEO of Spring Bank. Reports submitted to federal regulators show Spring Bank's borrowers, both individuals and businesses, are disproportionately located in low-to-moderate income census tracts. All of its small business lending in 2016 and 2017 went to businesses with less than $1 million in revenue. Yet it is financially sustainable — if it wasn't, like any bank it would get in trouble with regulators.
Quontic, the adaptive digital bank, is proud to announce the re-launch of its non-qualied mortgage products (non-QM) for one-to-four family owner-occupied home loans, along with non-QM loans for one-to-four family investors using a non-traditional debt service coverage ratio (DSCR). Quontic's unique non-QM loans are immediately available through its Wholesale Lending Division. The COVID crisis has required that most non-QM lenders pull out of the market due to liquidity constraints, capital losses or other reasons with little hope of reentry. While Quontic paused non-QM activity to assess risk during the pandemic, the bank has a strong balance sheet and is now aggressively offering its unique non-QM product line with favorable rates and terms to keep non-traditional borrowers and investors in the home buying market.
Congress created the Paycheck Protection Program with good intentions: help small businesses both to survive and avoid laying off their employees. Giving out over $500 billion certainly helped, but PPP has run its course. Rather than applying for the $130 billion still available, millions of small businesses will close down. Small businesses and workers still need help, but we need a better way to provide it. Fortunately, there are bipartisan proposals already in Congress to do that.
What role should banks play to build post-pandemic resilience? Banks were the problem in 2008. In 2020 they could speed the path to recovery, for example, by helping small businesses weather shelter-in-place orders. The banking industry has an opportunity to make good on its promise to communities as an essential service to be protected. But it takes all of us who work at banks, advocates who challenge the status quo, and customers who expect nothing less than equitable committed service.