October 03, 2022

The Future of Minority Depository Institutions: An Update from the Office of the Comptroller of the Currency

Tiyanna D. Lords

On July 26, 2022, the Office of the Comptroller of the Currency (OCC) issued an update to its 2013 policy statement on minority depository institutions (MDIs). Changes to the policy statement include: (i) clarifying the definition of an MDI, (ii) describing how an MDI may be formed de novo or by designating an existing bank as an MDI, and (iii) providing examples of support to MDIs. The updated policy statement streamlines descriptions of the OCC’s policies, procedures, and programs relative to MDIs.

What Prompted the Update?

In 2013, the OCC issued a policy statement on MDIs (2013 Policy Statement), reaffirming its commitment to their creation and preservation. The 2013 Policy Statement set out the agency’s MDI designation process, explained how the agency supports MDIs, and provided other useful information to stakeholders and interested parties. Nine years after the release of the 2013 Policy Statement, the OCC saw fit to review and revise its statement for a few reasons. Acting Comptroller Michael J. Hsu released a statement noting that “MDIs are on the frontlines serving low-income, minority, rural and other underserved communities. They are a critical source of credit to support the financial needs and economic vitality of their communities. The OCC has a long history of recognizing the value of these institutions, and we will continue our efforts to ensure they remain a bedrock of financial access and inclusion.”

In addition to recognizing the vital role of MDIs in supporting the economic viability of the communities they serve, the OCC witnessed an increased interest from banks and other stakeholders in working with MDIs following the 2020 formation of the Roundtable for Economic Access and Change (Project REACh) and establishment of the Emergency Capital Investment Program (ECIP) by Congress for COVID relief.

Project REACh convenes leaders from banking, business, technology, and national civil rights organizations to “reduce specific barriers that prevent full, equal, and fair participation in the nation’s economy.” Among other things, Project REACh provides MDIs with targeted technical assistance and help developing executive exchange programs, improving access to cost-effective and shared services, and establishing revenue-generating partnerships and collaborations. The Project REACh MDI Workstream addresses the challenges for minority-owned banks to access capital, expand technology capabilities, and modernize infrastructure. Surely, revising the OCC’s policy statement on MDIs to fit the current economic needs of underserved communities furthers the mission of Project REACh.

Also in 2020, Congress created the ECIP, which directed $9 billion to MDIs and certified Community Development Financial Institutions to, among other things, provide financial assistance to businesses and consumers in disadvantaged and underserved communities disproportionately impacted by the economic effects of the COVID-19 pandemic.

Meaning of MDI

The OCC defines an MDI to include a national bank or federal stock savings association that is at least 51% owned by one or more minority individuals, women, or other socially and economically disadvantaged individuals. An MDI also includes a federal mutual savings association (1) where minority individuals comprise a majority of the Board of Directors and its account holders and (2) that serves the credit and other economic needs of a community predominantly of minority individuals. A federal mutual savings association is also considered to be an MDI if (1) a majority of its Board of Directors is comprised of minority individuals, women, or other socially and economically disadvantaged individuals, and (2) minority individuals, women, or other socially and economically disadvantaged individuals hold a significant percentage of its senior management positions.

The revised policy statement clarifies the use of the term “minority individual” to mean African Americans, Asian Americans, Hispanic Americans, and Native Americans; and clarifies the use of the term “minority” to mean minority individuals, women, and other socially and economically disadvantaged individuals. In addition, the revision adds a minority account holder element to the description of federal mutual savings association. The revised policy statement streamlines and clarifies the meaning of an MDI, but the OCC does not intend for the definitional revisions to have a substantive effect.

Formation, Designation, and Ongoing Review

The process of forming a de novo bank that is designated as an MDI or, on the other hand, receiving an MDI designation as an existing bank, is rather simple. For individuals interested in forming a de novo bank, the applicant must (1) file an application and receive approval to form a bank, and (2) request that the bank be designated as an MDI. If the OCC determines that all the applicable requirements are met, the OCC will provide (1) a letter approving the formation of a bank and (2) a separate MDI designation letter. An existing bank that believes it satisfies the meaning of MDI, as set forth above, may request that the OCC designate it as an MDI. If the OCC determines the bank satisfies the meaning of MDI, the agency will provide the bank with an MDI designation letter.

At its discretion, the OCC may continue to designate as an MDI a bank that no longer satisfies the meaning of MDI if the bank supports the economic viability of a community comprised predominantly of minority individuals, women, or other socially and economically disadvantaged individuals. A bank that no longer satisfies the meaning of MDI is one that falls below the 51% ownership threshold. On an annual basis, the OCC reviews whether banks continue to satisfy the meaning of MDI or if continued designation is appropriate.

Support for MDIs

The OCC develops an annual strategy to support the financial vitality and safe and sound operations of MDIs and to address unique risks MDIs face. Specifically, the OCC supports MDIs by providing training, technical assistance, and educational programs in such areas as compliance, risk management, and operations.

Further, the OCC recognizes that depository institutions that are not MDIs (a.k.a. non-minority depository institutions or NMDIs) can be key partners with MDIs, and it supports these relationships, which can be valuable tools for assisting MDIs. The OCC also provides resources to help identify relevant partnership opportunities. In assessing the record of an NMDI under the Community Reinvestment Act (CRA) and its implementing regulations, the OCC considers capital investments, loan participations, and other ventures undertaken in cooperation with minority- and women-owned financial institutions and low-income credit unions if such activities help meet the credit needs of the local communities served by the MDI or low-income credit union. NMDIs that invest in MDIs may receive positive consideration under the CRA if those investments are consistent with the requirements of the CRA and its implementing regulations.

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Tiyanna D. Lords

McGlinchey Stafford, PLLC

Tiyanna Lords is an Associate at McGlinchey Stafford, PLLC in the Financial Institutions Compliance section. She focuses her practice on helping financial institutions interpret and apply a variety of state and federal laws applicable to their financial products. Tiyanna represents banks, finance companies, mortgage companies, and online lenders with issues ranging from fifty-state surveys of compliance requirements to vendor contracting, payment systems, privacy, and data security. She also advises on matters related to consumer loan documentation, e-commerce and digital lending, underwriting, and licensing.