JUST HOW RISKY? COMPARATIVE INSTITUTIONAL RISKS OF MISSION-BASED DEPOSITORY INSTITUTIONS

Abstract

We examine the relative institutional failure risks for three sets of bank depositories: Community Development Banking Institutions (CDBIs), Minority Depositories (MDIs) and what we term Non-Mission Depository Institutions (NMDIs). CDBIs have primary missions of community development and serving underserved populations; MDIs are typically led by minorities and serve minority populations (a single institution can be both a CDBI and an MDI, either or neither). In this analysis, NMDIs represent all other depository banks. Given their operation within lower-income and minority communities, MDIs and CDBIs appear, prima facie, to face greater institutional failure risks. We examine these risks across each set of institutions, ceteris paribus. Utilizing data from a number of sources, including the Reports of Condition and Income (call reports) for a substantial set of FDIC-insured banks in the United States, we apply a modified Capital, Assets, Management, Earnings and Liquidity model (CAMEL) to measure the predictive likelihood of failure. Recognizing that MDIs are not homogeneous, we also examine relative institutional failure across types of depositories. The results indicate that CDBIs and MDIs are systematically at lower failure risks and that there are differences across service designations.