by Cliff Rosenthal
Back in 1989, Congress instructed regulators to “preserve the number of minority depository institutions; preserve the minority character in cases of merger or acquisition;[and] promote and encourage creation of new minority depository institutions” (Section 308 of the Financial Institutions
Reform, Recovery and Enforcement Act — FIRREA).
It hasn’t gone well.
For decades, the banking system has steadily consolidated: There are now thousands fewer banks and credit unions. Black and other financial institutions have been hit especially hard. For more than 30
years I fought the trend, while leading the association of small, mostly minority credit unions now known as Inclusiv. In the decade since the Great Recession, the numbers of minority banks and credit unions have declined by one-third, as Maxine Waters, Chairwoman of the House Committee on Financial Services has noted. The loss of these institutions is a real setback to redressing financial inequality in the United States.
Now, at last, hope is on the way. In its year-end legislation, Congress approved unprecedented funding for community development financial institutions (CDFIs) and minority depositories (banks and credit unions). This includes $9 billion for “Capital Investments for Neighborhoods Disproportionately Impacted by the COVID-19 Pandemic”; $3 Billion for “Emergency Support for CDFIs and Communities Responding to the COVID-19 Pandemic”; and substantial annual appropriations for the Treasury Department’s CDFI Fund.
The size and scope of these programs dwarfed our dreams when first we advocated for a federal CDFI Fund. In 1986, I wrote the first paper calling for a federal fund with a modest “ask” of $25 million. In 1992, our newly formalized CDFI Coalition took a deep breath and proposed an “ambitious” sum: $1 billion (which a Republican-controlled Congress reduced to $50 million). Now, at last, we are seeing a federal response at a scale that could make a real difference for the financial institutions serving minority and low-income communities.
As a long-time advocate for low-income credit unions, I am especially heartened by the new programs’ focus on depository institutions. The CDFI Fund has been a great support for the field — but since 1996, 80% of its financial assistance awards have gone to nonprofit loan funds, while banks and credit unions combined have received 20% or less. This is not a criticism of the loan funds, which have achieved much vital work. But an equitable, accessible financial system requires institutions on the street that can serve the everyday needs of low-income consumers and neighborhood businesses. Above all, this means banks and credit unions.
The regulations implementing the program will be crucial. I am especially concerned that investment may be denied to “troubled” banks and credit unions — some of which are likely to be in the most distressed communities. We’ve seen this happen before. In the midst of the Great Recession, we won a billion-dollar federal investment program for CDFIs — the Community Development Capital Initiative (CDCI). But among other casualties, Shorebank — the Chicago-based progenitor of the community development banking movement — was denied CDCI funding, even though the private sector had pledged tens of millions of dollars to match any federal investment.
The new federal programs are a bittersweet victory for financial equity, coming at the cost of a cataclysmic epidemic and a devastated economy. We have every hope that the new investments will be a game-changer. But many devils lurk in the programs’ details, and fortunately, the clock ran out on the Trump Administration before it imprinted its mark on the programs. Still, there is work to be done to ensure that these multi-billion-dollar federal investments reach the small, overlooked institutions that serve the nation’s persistent pockets of financial exclusion and economic hardship — including the small credit unions that serve Black, Latinx, and Indigenous communities from Harlem to Hawaii.
Clifford N. Rosenthal served from 1980–2012 as CEO of the National Federation of Community Development Credit Unions (now, Inclusiv). He drafted the original concept paper calling for a CDFI fund and served in the leadership of the CDFI Coalition for two decades. From 2012–2014, he launched and managed the Office of Financial Empowerment of the Consumer Financial Protection Bureau (CFPB). Trained as an historian, he is the author of Democratizing Finance: Origins of the Community Development Financial Institutions Movement (FriesenPress). The Federal Reserve Bank of San Francisco published his study, Credit Unions, Community Development Finance, and the Great Recession. Cliff has served as visiting scholar at The New School and Brooklyn College. He has received the highest awards of the National Credit Union Foundation, the Opportunity Finance Network, and the Insight Center for Community Economic Development, among others. In 2019, he was inducted into the African-American Credit Union Hall of Fame.