FDIC Recruits Microsoft and Truist to Create Fund for Minority-Owned Banks

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The Federal Deposit Insurance Corporation will launch a new investment fund – the Mission-Driven Bank Fund – to inject capital into a group of financial institutions providing banking services to minority, low-income and rural communities across the country.

“One of the things I heard at the start of Covid-19 – and especially for black banks – was a lack of capital,” FDIC President Jelena McWilliams said in an interview with CNBC. “Finding good capital to come to the banks was the number one thing.”

The fund currently has three participants. Microsoft and Truist Financial – both of which have already invested time and funds in separate projects to strengthen underserved communities – are considered “pillar investors.” Discovery Inc. participates as a “founding investor”. So far, the fund has raised an initial investment of $ 120 million, according to the FDIC.

The agency says the new capital fund is specifically designed to support minority depository institutions (MDIs) and insured community development financial institutions (CDFIs), both of which are what the FDIC considers to be “run by banks”. the mission “. Both categories of institutions devote a large portion of their loans to minority and low-income communities.

There are 152 FDIC-insured MDIs, which have combined assets of nearly $ 300 billion, as of March 2021. There are 172 FDIC-insured CDFIs, with combined assets of nearly $ 88 billion. Together, these two types of institutions have branches in 29 states.

The FDIC predicts that initial investment pitches will start arriving from these institutions from the first quarter of 2022. The two main investors are in the process of hiring a fund manager and establishing ground rules for investment pitches. ‘investment. Although the FDIC is inaugurating the fund, the regulator says its role will be strictly advisory. He “will not contribute to the capital, manage or be involved in the investment decisions of the fund”.

Mission Drive Bank Fund participants are not the only players defending minority-oriented banks and businesses. Bank of America, for example, led a conference in April 2021 of 200+ companies and 27 minority-run financial institutions to coordinate connections between the two groups. Months later, Walmart and Verizon were just two of many to step forward and call on minority-owned banks to secure their green bonds.

Likewise, Wells Fargo announced in May 2021 that it had completed capital investments in 13 MDIs as part of its commitment to invest $ 50 million. The bank said in a press release that these investments, made in conjunction with the National Bankers Association and Sullivan & Cromwell, are designed to help black-owned banks maintain their MDI status.

How the FDIC program started

Oddly enough, the fundraising brainstorm didn’t start out of boardroom discussions. Instead, the inspiration came from something much simpler. McWilliams says she got the idea to flip through TV channels when she ended up watching the investment show “Shark Tank”.

McWilliams – who was appointed by President Donald Trump to lead the FDIC, and confirmed in May 2018 – said she watched people pitch their passion projects to ‘sharks’ and asked,’ Why haven’t we. -we not a “Shark Tank” -like a fund for minority depositories? CNBC Reports.

McWilliams then “pitched” the idea to FDIC Chief of Staff Brandon Milhorn, who, she said, exclaimed “Oh my God! How are we going to do this? ”

To help set it up properly, the FDIC consulted about 70 CEOs of MDI and CDFI, in addition to business groups, potential investors, and others. McWilliams says the conversations were prompted by questions about the tools financial institutions need to generate money in local communities of color.

( Keep reading: Understanding the #BankBlack movement)

“This fund is supposed to leverage other people’s investments under the FDIC brand,” says McWilliams, “and then allow every dollar to be multiplied exponentially for the benefit of homeowners and small businesses and credit in communities where it is necessary. more.”

One of the banks eligible for the funds is the Carver Federal Savings Bank – established in 1948 – which is both MDI and CDFI certified. The bank’s CEO, Michael Pugh, said if the banks supporting minority businesses couldn’t afford loans, it could have dire consequences.

For example, following the initial assault on Covid-19 restrictions and aftershocks, he explains that more than four in ten black businesses nationwide have been forced to shut down.

“A lot of these companies went bankrupt because, frankly, they just didn’t have access to the capital to survive a catastrophic situation,” says Pugh.

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Why Microsoft and Truist?

This isn’t the first time Microsoft or Truist have invested in helping underserved communities. In mid-August, Microsoft announced that it would partner with HSBC to support the non-profit Feeding America program in the form of a $ 350,000 grant from HSBC, with financial aid and online content. provided by Microsoft.

“Supporting mission-driven banks aligns perfectly with Microsoft’s commitments to tackle racial injustice and inequity,” said Anita Mehra, vice president of Global Treasury and Financial Services. “The Mission-Focused Banking Fund will enable banks to manage risk more effectively, leverage innovative technological solutions and directly increase funds going to diverse and under-represented communities. “

( To listen: How Microsoft embraced data transformation)

On the other hand, Truist Financial CEO William H. Rogers Jr. explains that investing in the FDIC fund is part of the bank’s trajectory, adding that the partnership in the new fund “is a direct investment in the fund. promoting our goal of inspiring and building better lives and communities. “

In September 2020, the bank spent $ 40 million to create a nonprofit called CornerSquare Community Capital, which supports selected CDFIs by purchasing 25% stakes in loans.

Truist in a statement states that 100% of CornerSquare program funding will be allocated to “small business owners of diverse racial and ethnic backgrounds, women, and individuals in low and moderate income communities, with a focus on small businesses. African-American-owned businesses. . “

( Learn more: Truist’s new CMO has strong opinions on fintech and customization)


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