Board of Governors of the Federal Reserve System

Preserving and Promoting Minority Depository Institutions Annual Report 2024

Preface

The Federal Reserve Board (Board) submits this report pursuant to section 367 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Section 367 of the Dodd-Frank Act requires the Board to submit an annual report to Congress detailing the actions taken to fulfill the requirements outlined in section 308 of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989, as amended by the Dodd-Frank Act in 2010 (appendix A). In addition to the annual reporting requirement, FIRREA section 308 requires the Federal Reserve System (System), which includes the Board and the 12 Federal Reserve Banks (Reserve Banks), to devote efforts toward preserving and promoting minority ownership of minority depository institutions (MDIs).¹ This report looks at the System's supervision responsibility relative to MDIs, the System's Partnership for Progress initiatives, the Board's research efforts, and other System efforts and initiatives in 2024.

The Board is responsible for implementing numerous provisions of the Dodd-Frank Act, including mandates to preserve and promote MDIs.

The Regulatory Reform page on the Board's website provides information on the Board's efforts implementing the Dodd-Frank Act as well as initiatives the Board expects to address in the future.²

Abbreviations

Board

Board of Governors of the Federal Reserve System

BSA

Bank Secrecy Act

CDFI

Community Development Financial Institution

CRA

Community Reinvestment Act

DCCA

Division of Consumer and Community Affairs

FDIC

Federal Deposit Insurance Corporation

FIRREA

Financial Institutions Reform, Recovery, and Enforcement Act of 1989

Reserve Bank

Federal Reserve Bank

LICU

Low-income credit union

MDI

Minority depository institution

NBA

National Bankers Association

OCC

Office of the Comptroller of the Currency

PFP

Partnership for Progress

S&R

Division of Supervision and Regulation

System

Federal Reserve System

WDI

Women's depository institution

Executive Summary

In accordance with the Federal Reserve's statutory mandates, this report details the actions taken in 2024, including through the Partnership for Progress (PFP) program, in support of preserving and promoting MDIs.

This report looks at the four main areas of the Board's efforts:

1. State Member MDIs—reviews the System's supervisory responsibility for the 16 state member MDIs.
2. Partnership for Progress Programming—looks at how the System supports MDIs through its PFP program, which is a national outreach effort to help MDIs confront unique business-model challenges, cultivate safe banking practices, and compete more effectively in the marketplace.
3. Research and Analysis on MDIs and Low- and Moderate-Income Communities—looks at research, analysis, and articles produced by the Federal Reserve to better understand the opportunities and challenges MDIs face in their local market areas.
4. Efforts and Initiatives—looks at ways the Federal Reserve continued to dedicate resources for proactive outreach and technical assistance.

State Member MDIs

The Federal Reserve had primary supervisory responsibility for 16 state member MDIs in 2024,³ which is unchanged from 2023. The majority of these MDIs are community banks with total assets of $10 billion or less (table 1).⁴ Accordingly, the System's community banking organizations program, which is responsible for the risk-focused supervision of state member banks with less than $10 billion in total assets, maintains supervisory responsibility for most of the Board's portfolio of MDIs. In 2024, the Federal Reserve's community banking organizations program supervised approximately 650 state member banks with total assets of less than $10 billion.⁵

Table 1. Asset distribution of state member MDIs as of December 31, 2024

Geographic Dispersion

In 2024, state member MDIs were located in six of the 12 Reserve Bank Districts, with assets concentrated in the New York and San Francisco Districts (table 2).⁶ State member MDIs in these two Districts accounted for 97 percent of the total state member bank assets in the System's MDI portfolio. Though smaller in asset size, there is also a concentration of state member MDIs in the Kansas City District. All five of the MDIs in this District are located in Oklahoma and are Native American MDIs.

Table 2. State member MDI distribution by Federal Reserve District as of December 31, 2024

Minority Ownership Type

The Federal Reserve's MDI portfolio includes banks representing all minority ownership categories as defined by FIRREA (appendix A). As of year-end 2024, five state member MDIs were classified under Asian American minority status, six were classified under Native American minority status, four were classified under Hispanic American minority status, and one was classified under Black/African American minority status (figure 1).

Women's Depository Institutions

The Federal Reserve defines women's depository institutions (WDIs) separately from MDIs. In March 2021, the Board issued a Supervision and Regulation letter—"Highlighting the Federal Reserve System's Partnership for Progress Program for Minority Depository Institutions and Women's Depository Institutions"—to clarify the distinction between WDIs and MDIs and to include WDIs in the PFP program.⁷ The System's definition of WDI is consistent with the definition of this term in the Community Reinvestment Act (CRA) and includes any depository institution where a majority of ownership or a majority of revenue is held by at least one woman and a significant percentage of senior management positions are held by women.⁸ As of year-end 2024, there were four banks classified as state member WDIs out of a total of approximately 650 state member banks in the Federal Reserve's community banking organizations program's portfolio.⁹

Partnership for Progress Programming

The Federal Reserve System supports MDIs primarily through the PFP program. The PFP is the System's national MDI outreach program created to support the System's federal mandate to preserve and promote MDIs. The PFP includes a national outreach effort to help MDIs address unique business-model challenges, cultivate safe banking practices, and compete more effectively in the marketplace.

The PFP program is jointly managed by the Community Banking Organizations section of the Federal Reserve's Division of Supervision and Regulation (S&R) and the Community Development section of the Division of Consumer and Community Affairs (DCCA). This multidivisional arrangement leverages the community development expertise and external network of the community development program in DCCA with the institutional focus and regulatory expertise of community and regional banking in S&R. The two divisions share the staffing of the PFP program, and both divisions have appointed senior officers to co-chair the program's Executive Oversight Committee. In addition, there is a program manager at the Federal Reserve Bank of Philadelphia, and each Reserve Bank has designated a PFP District coordinator who communicates regularly with the MDIs in their District (where applicable) and assists with accomplishing the mission of the PFP program.

Overview of the outreach provided by PFP:

• Technical assistance: Providing direct consultative support to MDIs on a variety of regulatory topics as requested or through outreach events.
• Research: Sharing research and analysis on topics affecting MDIs and the customers they serve.
• Conferences and convenings: Leveraging the System's resources as the central bank of the United States to support MDIs by
  • attending and presenting at MDI-related convenings;
  • holding MDI-focused conferences and convenings to foster information exchange, promote the importance of MDIs, and strengthen partnerships to support the MDI sector; and
  • strengthening communication between MDIs, with System and interagency supervisors, and other key regulatory stakeholders.
• Outreach: Providing MDIs information, guidance, and support regarding
  • current and emerging regulatory updates and issues,
  • applications,
  • de novo bank formation and MDI designation, and
  • key information on the PFP's website.

As noted above, the congressional mandate in section 308 of FIRREA to preserve and promote MDIs is carried out through supervisory actions as well as other activities. In addition to providing technical assistance and outreach to the System's regulated MDIs, the Board actively works with colleagues at the other federal regulatory agencies with section 308 responsibilities to ensure a coordinated approach to supporting all MDIs.

The PFP seeks to achieve the program's goals outlined above through

• holding periodic meetings with the Board's PFP Executive Oversight Committee, program manager, and District coordinators to collaborate on MDI outreach efforts around the System;
• offering outreach and technical training sessions to MDIs and Federal Reserve examiners;
• providing targeted information regarding the System's supervisory and application processes; and
• sharing research, convening stakeholders, and promoting MDIs through speeches and other publications.

Collaboration with Trade Groups and Other Partners

Throughout 2024, the PFP consulted with the National Bankers Association (NBA). The NBA is a trade organization for minority- and women-owned financial institutions that serves as an advocate for the nation's MDIs on legislative and regulatory matters concerning and affecting its members and the communities they serve.

The Federal Reserve collaborates regularly with other federal banking agencies, such as the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC). The agencies discuss various opportunities to identify ways they can work together to support MDIs consistent with the statutory mandate.

Other outreach engagements in 2024 included the organization of virtual interagency listening sessions with the FDIC and the OCC for MDI leaders. The aim of these sessions was to identify additional ways the federal agencies can preserve and promote MDIs. Additionally, Board and System staff participated in partnership events and conferences hosted by industry associations.

Speeches and Remarks

In 2024, Federal Reserve Board members gave the following public remarks on topics relevant to the MDI and WDI industry:

• In May, Governor Lisa D. Cook gave a speech on the "Growth and Change at Community Development Financial Institutions" in New York, New York. The speech is available here: https://www.federalreserve.gov/newsevents/speech/cook20240514a.htm.
• In July, Vice Chair for Supervision Michael S. Barr made remarks on "Financial Inclusion: Past, Present, and Hopes for the Future" in Washington, D.C. The speech is available here: https://www.federalreserve.gov/newsevents/speech/barr20240709a.htm.
• In July, Governor Michelle W. Bowman gave a speech on "Promoting an Inclusive Financial System" in Washington, D.C. The speech is available here: https://www.federalreserve.gov/newsevents/speech/bowman20240709a.htm.
• In August, Governor Michelle W. Bowman gave "Remarks on the Economic Outlook and Financial Inclusion" in Anchorage, Alaska. The remarks are available here: https://www.federalreserve.gov/newsevents/speech/bowman20240820a.htm.

Research and Analysis on MDIs and Low- and Moderate-Income Communities

Throughout 2024, the System produced several pieces of research and analysis that were relevant to mission-driven lenders and the markets they serve, including¹⁰

• CDFIs: Crucial Partners in the Public Finance Ecosystem: For more information on this article, see https://www.chicagofed.org/publications/chicago-fed-insights/2024/cdfis-partners-public-finance.
• An Overlooked Factor in Banks' Lending to Minorities: For more information on this article, see https://libertystreeteconomics.newyorkfed.org/2024/01/an-overlooked-factor-in-banks-lending-to-minorities/.

Efforts and Initiatives

Preserving the Character and Number of MDIs

To preserve the character and prevalence of state member MDIs, in accordance with the Board's statutory mandate, whenever Federal Reserve staff receive a proposal involving an MDI, every effort is made to ensure that the institution's MDI status is preserved and that its future prospects are enhanced. The Federal Reserve's mergers and acquisitions (M&A) function continues to offer a pre-filing option for banking proposals, which provides critical feedback on potential issues and potentially shortens the review period for many formal proposals. Finally, in the rare instance where an MDI is in troubled condition, staff from the Board's M&A function coordinate with the FDIC to help identify healthy minority banking organizations capable of acquiring or merging with state member MDIs that are in troubled condition.

Promoting MDIs

In accordance with the Board's statutory mandate, the Federal Reserve strives to promote new MDIs via public website by providing guidance about regulatory procedures for minority bank ownership, informing MDIs of federally sponsored programs, and promoting community development. These web posts also provide guidance about financial institution development, including information about the process of starting a bank, managing a bank through the de novo period, and growing shareholder value while ensuring safe and sound operations. Further, coordinators from each Reserve Bank periodically discuss emerging issues, attend conferences, serve on local examination teams, and collect feedback from MDIs on observations and how the PFP can provide additional assistance.

Training, Technical Assistance, and Educational Programs

Coordinators from each Reserve Bank meet as needed with MDI management to discuss emerging issues and provide technical assistance, especially if the MDI is in troubled condition; to explain supervisory guidance; discuss challenges; and respond to management concerns. At these meetings, discussion topics included the Home Mortgage Disclosure Act reporting and the Bank Secrecy Act (BSA). As an example, a state member MDI reached out to a District coordinator asking for technical assistance for the bank's board of directors. The PFP coordinated a subject matter expert to provide a BSA presentation to the board.

Partnership for Progress Website

The PFP website is currently undergoing an update with an anticipated launch date of 2026.¹¹

Publications and Webinars

The Federal Reserve continues to support enhanced communications with community banks, including MDIs. To this end, the staff disseminates important information about regulatory matters through the publications and programs listed below, most of which are accessible through links on the PFP website.

The System's Community Banking Connections publication serves to¹²

• highlight new regulations and supervisory guidance,
• provide perspectives from bank examiners and System staff, and
• address challenges and concerns facing community banks and provide resources to assist them.

The System's Consumer Compliance Outlook publication focuses on compliance with federal consumer protection laws and regulations for financial services and serves to¹³

• explain new and existing regulatory compliance requirements,
• provide perspectives from bank examiners and System leadership,
• address challenges and concerns facing community banks and provide resources to assist them, and
• discuss emerging compliance issues.

"Outlook Live" is a webinar series dedicated to consumer compliance.¹⁴ The webinars involve a variety of presenters from both the System and the other federal financial regulatory agencies, focusing on key emerging issues in the industry.

"Ask the Fed" is the Federal Reserve's premier program for communicating important and timely supervisory, regulatory, banking policy, and economic information. "Ask the Fed" is a webinar program open to supervised financial institutions, state bank regulators, state/national banking associations, and other relevant groups.¹⁵ "Ask the Fed" consists of periodic webinars that feature presentations by Federal Reserve experts and guest speakers on current critical banking questions with time at the end for questions and comments.

Community Reinvestment Act

The Community Reinvestment Act, or CRA, was signed into law in 1977 and is a seminal piece of legislation to address inequities in access to credit for low- and moderate-income individuals and communities. Under the statute and CRA regulations, banks can receive CRA credit for capital investment, loan participation, and other ventures undertaken in cooperation with MDIs, WDIs, and low-income credit unions (LICUs), in certain circumstances.¹⁶ These activities must help meet the credit needs of local communities in which the MDIs, WDIs, or LICUs are chartered. In addition, certain bank activities with community development financial institutions can qualify as community development under the CRA regulations and guidance.¹⁷

Appendix A: Section 308 of FIRREA

Section 308 of FIRREA, as amended by the Dodd-Frank Act, requires

1. CONSULTATION ON METHODS.—The Secretary of the Treasury shall consult with the Chairman of the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the Chairman of the National Credit Union Administration, and the Chairperson of the Board of Directors of the Federal Deposit Insurance Corporation on methods for best achieving the following:

   1. Preserving the present number of minority depository institutions.

   2. Preserving their minority character in cases involving mergers or acquisition of a minority depository institution by using general preference guidelines in the following order:

      1. Same type of minority depository institution in the same city.
      2. Same type of minority depository institution in the same state.
      3. Same type of minority depository institution nationwide.
      4. Any type of minority depository institution in the same city.
      5. Any type of minority depository institution in the same state.
      6. Any type of minority depository institution nationwide.
      7. Any other bidders.
   3. Providing technical assistance to prevent insolvency of institutions not now insolvent.
   4. Promoting and encouraging creation of new minority depository institutions.
   5. Providing for training, technical assistance, and educational programs.

2. DEFINITIONS.—For purposes of this section—

   1. MINORITY FINANCIAL INSTITUTION.—The term "minority depository institution" means any depository institution that—

      1. if a privately owned institution, 51 percent is owned by one or more socially- and economically-disadvantaged individuals;
      2. if publicly owned, 51 percent of the stock is owned by one or more socially- and economically-disadvantaged individuals; and
      3. in the case of a mutual institution, the majority of the board of directors, account holders, and the community which it services is predominantly minority.
   2. MINORITY.—The term "minority" means any Black American, Native American, Hispanic American, or Asian American.¹⁸

In addition, section 367 of the Dodd-Frank Act amended FIRREA to require the supervisory agencies to submit an annual report to the Congress containing a description of actions taken to carry out FIRREA section 308.

Appendix B: MDI Figures and Tables

Table B.1. State member MDIs as of December 31, 2024

Table B.2. State member WDIs as of December 31, 2024

Table B.3. List of MDIs as of December 31, 2024

Footnotes