EDITOR NOTE: In a move inspired by the TV show ‘Shark Tank,’ the Federal Deposit Insurance Corp. (FDIC) is teaming up with Microsoft and Truist to offer a new investment fund that will help divert funds to minority-owned banks in an effort to “support of people of color.” CNBC reports that “the new Mission-Driven Bank Fund will exclusively invest at banks that service minority, lower-income and rural communities that often suffer from a lack of long-term capital.” FDIC Chair Jelena McWilliams said the idea came to her while watching TV. “As I saw different investors pitching their themes to the sharks,’ McWilliams said. “I thought, ‘Well, why don’t we have a “Shark Tank”-like fund for minority depository institutions?'"
The Federal Deposit Insurance Corp. will unveil this week a new investment fund backed by corporate giants that will offer stakeholders a way to channel much-needed capital to banks owned by and in support of people of color.
The new Mission-Driven Bank Fund will exclusively invest at banks that service minority, lower-income and rural communities that often suffer from a lack of long-term capital, according to documents seen by CNBC.
The project represents the latest government-backed effort to support minority-owned banks, which have struggled in recent decades because of failed loans, competitors that are larger as a result of mergers and acquisitions, and financial downturns that have an outsized impact on smaller banks.
“One of the things that I heard in the beginning, and in particular for Black banks, was a lack of capital. Finding good capital to come to the banks was the No. 1 thing,” FDIC Chair Jelena McWilliams told CNBC on Monday.
Microsoft and Truist Financial are so-called anchor investors in the fund, each putting in tens of millions of dollars to help it launch. The fund, also supported by media giant Discovery, has raised approximately $120 million to date.
The fund’s conception and design also implicitly endorse a new school of thinking on the best ways to support minority-owned, community-focused banks that center on the importance of long-term “patient” capital.
Longer-term investments — such as equity or debt financing — allow lenders greater flexibility to lend capital to borrowers at a profit, the main moneymaking lever for consumer and small-business banks.
Minority bank advocates hope that more million-dollar corporate deposits or a greater number of certificates of deposit will buy smaller banks enough time to not only generate profits but also to help rectify race-based economic inequities.
McWilliams said her early work on the fund included conversations with small bank CEOs about how the federal government could best help them in their mission to boost homeownership and business formation among communities of color.
Originally posted on CNBC