GOOD MONEY AFTER BAD? THE COMPARATIVE EFFICIENCY OF MINORITY DEPOSITORY INSTITUTIONS

Abstract

We examine the relative efficiency of a unique set of banks, Minority Depository Institutions (MDIs). MDIs are led by minorities and typically serve minority populations. Given Social Economic Status (SES) skews across racial/ethnic groups in the United States, operation within minority communities appear, prima facie, to be relatively expensive and thus inefficient. We examine the return on assets (ROA) and small business lending efficiency of MDIs when compared to what we categorize as “non-MDI” depositories, ceteris paribus. We also examine these institutions for a period that includes a recent environmental shock, the 2008 financial crisis and the post-recessionary period. Using data from the Reports of Condition and Income (call reports) for a substantial set of FDIC-insured banks in the United States, we apply a data envelopment analysis (DEA) to determine how a set of MDIs perform relative to comparable institutions. Recognizing that MDIs are not homogeneous, we also examine relative efficiency across types of MDIs by racial/ethnic grouping. The results indicate that MDIs are not less efficient systematically and that there are differences across MDI types.