U.S. Sens. Tim Scott (R-SC) and Maggie Hassan (D-NH) introduced a bill designed to help community banks better meet the credit needs of their customers.
Specifically, the Minority Deposit Institution and Community Bank Deposit Access Act clarifies existing Federal Deposit Insurance Corporation (FDIC) policy. It clarifies it by establishing that, under safe circumstances, well-capitalized community banks, minority deposit institutions (MDIs), and community development financial institutions (CDFIs) can accept custodial deposits without facing additional regulatory requirements or scrutiny.
By doing this, the bill seeks to promote the inflow of third-party deposits to small community financial institutions rather than the country’s largest banks, allowing these deposits to be reinvested into underserved communities.
In addition, it allows minority credit unions to access the National Credit Union Administration’s Community Development Revolving Loan Fund.
“This bipartisan bill empowers smaller, local banks to compete with bigger banks for deposits,” Scott said. “As we saw throughout the pandemic, rural and minority business owners faced especially difficult challenges finding lending options. Increasing access to capital at local banks that serve lower-income borrowers and rural communities will help expand financial opportunities for the hard-working families, farmers, and small business owners who live there.”
Community banks, community development financial institutions (CDFIs), and minority deposit institutions (MDIs) represent approximately 98 percent of the number of banks in the United States but hold only 17 percent of the banking system’s deposits. CDFIs deliver at least 60 percent of their total lending, services, and other activities in low-income communities. They also extend 53 percent of all the small business loans made by banks.