LEILA FADEL, HOST:
The sudden collapse of California-based Silicon Valley Bank has raised concerns over the health of the U.S. banking sector. A new study suggests that close to 190 other U.S. banks could face a similar fate if just half of their depositors withdraw their cash. This includes smaller, minority-owned community banks that support people of color in a way the bigger banks don't. Joining me now is Nicole Elam, president and CEO of the National Bankers Association that represents America's minority-owned financial institutions. Good morning, Nicole.
NICOLE ELAM: Good morning. Thank you for having me.
FADEL: Thank you for being here. So I want to start with that big question. Does all this turmoil have an outsized impact on America's minority-owned banks?
ELAM: Absolutely. The bank failures have led to deposit flight as we're seeing customers withdraw their funds and take it to banks that the public taught them or, actually, the government taught them in 2008 are too big to fail. And so we are spending a lot of time educating customers that their money is safe with minority banks. In fact, 98% of all deposit accounts at minority banks are under $250,000 and thus fully FDIC insured. But we're seeing a lot of deposit flight.
FADEL: And a lot of these minority-owned banks are the smaller banks that are more fearful now that people will pull their money to go to the bigger institutions?
ELAM: Absolutely. The average asset size of a minority bank is under $400 million. So these are the smallest of the small banks, but these are also the banks that have an outsized impact in the community. Minority banks are located in communities that are 77% minority. Compare that to all other banks, which are located in communities that are only 31% minority. So they are significant providers of mortgages and small business loans in the communities that they sit in and serve.
FADEL: And if you could just talk about what's so important about securing the health of minority-owned banks so they can exist, continue to exist, especially as it relates to what they offer to people of color compared to the big financial institutions and the history of how they've treated people of color, especially Black people.
ELAM: That's a great question. So minority banks were actually born out of racism because Black, brown and immigrant communities could not go to mainstream financial institutions for their banking services. The reality of it is that 100 years later, data continues to show that these banks are significant providers of mortgages and small business loans. If you are Black, brown or immigrant, you are more likely to have access to financial services. You are more likely to get approved for a mortgage, more likely to get approved for a small business loan if you have a minority bank branch sitting in your community. And so these are the ones that were pushing out PPP loans during the pandemic. They're the ones that have been providing access to financial services. They're the ones saying yes when other banks are saying no to these underserved communities.
FADEL: But even before this turmoil started, the number of Black-owned banks specifically have been declining over the last two decades. Why is that? Why is that happening?
ELAM: A lot of it has to do with these banks being historically undercapitalized. At its peak, there were 134 Black banks. Today, there are only 21. The reason why is because these banks don't have access to the same capital markets as larger, mainstream financial institutions. So whenever there is an economic downturn, these banks are hit hard, oftentimes hit hard like the communities that they serve, so they're forced to close. What's been different, though, is that over the last three years, you have seen the public, private and philanthropic sector infuse huge amounts of capital into these banks in this post-pandemic, post-George Floyd environment as they have realized that these banks are key to helping to close the wealth gap. And so you've seen Black banks in particular grow in asset size by 56% in the last three years as you've seen 4 to $5 billion flow into these banks.
FADEL: So right now, in this moment of turmoil and uncertainty, what would you like the Biden administration to do to ensure that smaller community banks are safe for depositors?
ELAM: Two things - I would like them to reinstate full deposit insurance coverage for depositors for the next one to two years. I think that will restore public confidence in the banking system. And it will also level the playing field because what's happened is that the government has created this two-tier banking system - that there are banks that are too big to fail and everyone else.
FADEL: Nicole Elam, president and CEO of the National Bankers Association, thank you for taking the time.
ELAM: Thank you for having me. Transcript provided by NPR, Copyright NPR.