Minority-owned Banks Research Articles

COVID-19 and Its Impact on Minority-Owned Banks

Employing a difference-in-differences framework, we examine the effect of COVID-19 on various performance metrics of minority-owned banks relative to peer banks. We find little evidence of worsening performance of minority-owned banks, except for Asian-owned banks. In some instances, minority banks show improved performance. We find a decline in nonperforming single-family residential loans for Hispanic-owned banks. Moreover, minority banks have disbursed more Paycheck Protection Program (PPP) loans than their matched non-minority counterparts. Their resilient performance indicates that minority banks are well positioned to aid in the ongoing economic recovery.

'Let Us Put Our Moneys Together:' Minority-Owned Banks, Local Economic Development, and Resilience to Crises

'Let Us Put Our Moneys Together:' Minority-Owned Banks, Local Economic Development, and Resilience to Crises

'Let Us Put Our Moneys Together:' Minority-Owned Banks and Resilience to Crises

'Let Us Put Our Moneys Together:' Minority-Owned Banks and Resilience to Crises

Impact of Bank Closings on Credit Extension to Businesses in Low-Income and Minority Neighborhoods

New research is surfacing since the last financial crisis, not only to help predict risks associated with bank failures but also to assess the impact of bank failures on the economy and local geographies. However, although bank failures occurred mostly among small (community) banks, much less is understood regarding how the closing of mission-oriented community banks, or minority-owned banks, affect traditionally underserved markets, areas such failed banks were designed to serve. We conduct an empirical investigation testing the effects of bank closings on local areas. We find that, as a result of bank closings, there are significant frictions with small businesses obtaining credit, which appear to be potent enough to cause cumulative declines in aggregate small business lending in neighborhoods, lasting up to 3 years. We also find evidence that such lending shocks have repercussions on small business growth. We find that the closing of large banks also has an impact on small business lending, consistent with previous research, which has shown that as small businesses lose credit from large banks, they are not able to switch easily to other banks, leading to a decline in aggregate lending in local areas. We find this to be true for low- or moderate-income (LMI) and minority businesses/neighborhoods. We also find that the failure of community development financial institutions (CDFIs) and minority depository institutions (MDIs) leaves a credit void that may not automatically be filled in LMI and minority neighborhoods.

Minority owned banks and efficiency revisited

U.S. Government support for minority owned banks (MOBs) dates to the late 1960s. Evidence through the early 1990s suggested these banks are relatively inefficient. This study updates that research, using Stochastic Frontier Analysis (SFA) and panel data from 2003 to 2014 on minority owned banks and other banks. It is, as far as we know, the first such study to exclude outliers in SFA estimation, while recovering the outliers for efficiency estimation. Initial results identify a disruption in cost efficiency during 2008, with statistically distinct regimes for 2003–2007 and 2009–2014. Including recovered observations alters the patterns of MOB efficiency in significant ways, and leads us to conclude that current MOB inefficiency is mainly limited to Asian American owned and Multi-racial and minority serving banks. Tests for the effects of government deposits under a U.S. Treasury program suggest these did not adversely effect efficiency among covered MOBs, but may have improved survival rates for those MOBs subsequent to the financial collapse.

Comment on “Error and Regulatory Risk in Financial Institution Regulation”

Comment on “Error and Regulatory Risk in Financial Institution Regulation”

Minority‐Owned Banks and Bank Failures After the Financial Collapse

Minority‐owned banks (MOBs) are small banks, which often serve disadvantaged communities of color, and failed at high rates after the financial collapse. The U.S. Census and FDIC data are used to analyse bank failures for 2009–2014, with predictors from 2008, using logistic regression for estimation. Failure rates were high among Black and Asian American–owned banks; these are related to bank failures in African American communities and concentration in commercial real estate lending; policy responses to the collapse were generally ineffective for small banks. We conclude that policy support for MOBs operating in disadvantaged communities of color is warranted.

Impact of the 2008-2009 recession on African-American owned US banks

Purpose – The purpose of this paper is to contribute to the literature on minority-owned commercial banks in the USA. Design/methodology/approach – The authors examine performance differences between African-American (AA) commercial banks and other minority (OM)-owned banks. Also, the authors compare AA bank performance with that of their peer-group banking institutions. Findings – Employing data both before and after the recessionary period of 2008-2009, the authors find significant performance differences between minority ownership categories. For example, prior to 2008, AA banks held a significant advantage over OM-owned banks in net interest income as a percentage of average assets. This competitive advantage was somewhat offset by relatively weak loan portfolios and failure to contain costs. The 2008 crisis served to exacerbate the negatives of African-American banks while their positive differences essentially disappeared. Originality/value – The focus is different than the previous studies on minority-owned banks. The authors are especially interested in how AA banks have fared – relative to banking industry peer institutions, but also, relative to OM-owned banks.

Do Minority-owned Banks Pay Higher Interest Rates on CDs?

This paper analyzes whether minority-owned banks pass along an advantage in access to governmental deposits to the communities they serve in the form of higher interest rates paid on certificates of deposit (CDs). Although academic evidence has not confirmed increased profitability or efficiency of these banks since the creation of the Minority Bank Deposit Program, their unique positioning within communities may allow them to meet the needs of a clientele with lower and less stable income, and with higher than average expected future deposit withdrawals. Data from the regulatory reports provided by minority and non-minority owned banks are analyzed using five distinct time horizons for CDs. The results suggest that Black-owned banks consistently pay higher interest rates on CDs, with a lower premium for longer-term CDs, and used the premium to cushion the ill effects of the recent financial collapse on their customers. Asian-owned banks provide a smaller premium for short-term CDs, while the remaining category of minority-owned banks, including Native American, Hispanic, and Women-owned banks, also paid a premium on CDs, but shrank that premium substantially following the financial collapse. Note also that minority-owned banks may use this funding advantage in a variety of other ways to serve their respecitive communities.

The Economic Performance of African-American-Owned Banks: The Role of Loan Loss Provisions

Economists’ interest in African-American banking institutions dates back to the early 1970’s when Andrew Brimmer cast a factual, yet ominous shroud over the efficacy of African-American banks as engines for growth in African-American community economic development. Brimmer (1971 p. 207) stated, ‘‘Black banks are helpless as a vehicle to produce change in minority communities as a result of serious weaknesses in management capability.’’ In addition, earlier studies noted that African-American banks in particular face higher loan losses than their nonminority peers, employ more conservative, assetportfolio management strategies, and operate with lower ratios of equity capital to assets (Brimmer, 1971; John T. Boorman and Myron L. Kwast, 1974; Timothy M. Bates and William D. Bradford, 1980; Kwast, 1981). All of these practices inevitably work to reduce bank profitability and limit growth capability. Recent research by Elyas Elyasiani and Seyed Mehdian (1992) and Iftekhar Hasan and William C. Hunter (1996) compare the operating performance of minority and nonminority banks to a set of ‘‘best practice’’ banks that produce financial products and services at the lowest cost using the most efficient mix of productive inputs. This paper builds upon this previous work on managerial inefficiency in minority banking institutions by identifying proximate causes of inefficiency. Due to the adverse socioeconomic conditions of urban areas where many minority-owned banks are located, these institutions are faced with risk and uncertainty unique to those par-

The output efficiency of minority-owned banks in the United States

This study extends prior research on minority-owned banks by examining their output performance. Using a deterministic output distance function, both technical and allocative efficiency are measured. The findings indicate that, with a given set of inputs, minority-owned banks produce less outputs than a comparable group of nonminority-owned banks. Also, both minority-owned banks and nonminority-owned banks fail to allocate outputs in revenue-maximing proportions.

The viability of minority-owned banks

The poor performance of minority-owned banks that has been widely documented in the literature over the last three decades is not due to their operating environments. Even after local market conditions are considered, the findings of this study reveal that black and Hispanic banks generally underperform their nonminority peers competing in the same marketplace. High levels of government deposits in minority banks did not improve the long-term viability of these institutions. The one exception appears to be the Asian-American banks which are not found to be significantly different from their local nonminority peer banks.

Productive efficiency performance of minority and nonminority-owned banks: A nonparametric approach

This study examines the efficiency performance of the minority-owned banks (MOBs) as multiproduct firms relative to that of the nonminority banks (NMOBs) using a highly flexible nonparametric approach. Since MOBs and NMOBs employ distinct technologies the efficiency indices for the two groups are derived relative to their respective group-specific frontiers and are contrasted to shed light on the ownership-efficiency relationship. The MOB sample is then disaggregated and the intra-group efficiency differentials are investigated. The findings support the hypothesis that abstracting the regional, regulatory, size, and maturity characteristics of banks, efficiency differentials between MOBs and NMOBs are statistically insignificant.

Structural changes in high performing minority and nonminority banks in the deregulated banking environment

This study considers the changes that have occurred in the balance sheets of high-performance minority-owned banks during the period 1981–1988 and compares them to changes in the balance sheets of high-performance nonminority-owned banks. The changes are analyzed using two methodologies: decomposition analysis and a t-test of the mean differences of the balance sheet and of its component parts. The study examines changes in total assets, total liabilities, and the balance sheets as a whole, and then disaggregates the assets and liabilities to determine where the changes occurred in each group of banks. The findings show statistically significant differences in the average proportions of assets and liabilities between the two groups: minority banks held more cash than nonminority banks, fewer loans, more premises, a higher volume of other assets, more common stock and lower undivided profits. Although the wide differences in the structural changes of assets and liabilities began to narrow in 1985–1987, the analysis indicates the differences may again be increasing between the two groups.

THE START‐UP EXPERIENCE OF MINORITY‐OWNED COMMERCIAL BANKS: A COMPARATIVE ANALYSIS

OVER THE PAST DECADE, the number of minority-owned commercial banks in the United States has expanded from ten to forty-four and their assets have increased more than tenfold, to $673 million. Various aspects of the performance of these banks as well as their potential role in community economic development have been examined by other authors.However, the continually increasing growth in the number of such institutions together with the recent difficulties experienced by several of the newer ones suggest the need for additional analysis. The differences in the portfolio management and operating procedures of the older and newer minority banks reported by Andrew Brimmer [7] and John Boorman [3] indicate that it may be inappropriate to aggregate over all minority-owned banks when analyzing their performance. As a result, the present study concentrates solely on the experience of the eight minority-owned banks founded between 1963 and 1965 and compares their performance with that of a sample of similarly situated nonminority banks.2 The nonminority banks in the comparative sample were chosen to insure similarity with the maturity, location and general economic environment of the minority-owned banks.3 The sample selection criteria employed to define the comparative sample are:

The Start-Up Experience of Minority-Owned Commercial Banks: A Comparative Analysis

The Start-Up Experience of Minority-Owned Commercial Banks: A Comparative Analysis