While Minority Depository Institutions (MDIs) make up a small part of the overall U.S. banking system, they play an outsized role in the communities they serve.
These mission-driven banks are vital resources in low- and moderate-income areas. They help improve access to banking services, loans and credit—and they also work to uplift the lives and well-being of people and places.
Whether you’re a business owner looking to access capital or a consumer preparing to purchase your first home, you’ll want to know about MDIs and how they support your community. Here’s some background on MDIs and the role they play in banking underserved communities—plus how JPMorgan Chase is helping to elevate MDIs and amplify their good work.
What is an MDI?
An MDI is a community-based bank or credit union that provides financial services and promotes economic growth within underserved communities. MDIs can serve Black, Hispanic/Latino, Asian or Indigenous consumers, homeowners, business owners and social impact programs.
MDIs are seen as alternatives that say “yes” when other traditional lenders might say “no.” This is largely because MDIs have deep community relationships and an overarching, primary mission of driving local economic success for underserved citizens. MDIs do that by helping new homeowners to find a mortgage, families to build generational wealth and entrepreneurs to access capital by providing loans and other vital banking services.
The Federal Deposit Insurance Corporation (FDIC)—which insures MDIs and oversees them along with the Office of the Comptroller of Currency and the Federal Reserve—defines MDIs as any federally insured depository institution for which:
- At least 51% of the voting stock is owned by minority individuals; or
- A majority of the board of directors is part of an underserved community, and the primary community being served is predominantly minority1
"FDIC research shows that compared to other financial institutions, MDIs originate a greater share of their mortgages to borrowers who are minorities or live in low-to-moderate income (LMI) census tracts. MDIs also originate a greater share of Small Business Administration loans to borrowers in LMI census tracts and to borrowers in census tracts with higher shares of minority residents."2
MDIs were a recognized segment of banking for decades, but it wasn’t until 1989 when the designation was made official as part of the Financial Institutions Reform, Recovery, and Enforcement Act. The act had five strategic goals:
- Preserve the number of MDIs
- Preserve the minority character in cases of merger or acquisition
- Provide technical assistance to prevent insolvency of institutions not now insolvent
- Promote and encourage creation of new MDIs
- Provide training, technical assistance and educational programs for MDIs
What’s the difference between MDIs and CDFIs?
While closely related—both address the financial needs of diverse communities through lending and social impact—there is an important difference between MDIs and Community Development Financial Institutions (CDFIs). MDIs are strictly insured depository institutions, but CDFIs can take different structures including nonregulated loan and venture capital funds, in addition to being regulated banks and credit unions.3 Still, CDFIs can qualify as MDIs if they are banks or credit unions, so there is some overlap between the two designations.
Characteristics of MDIs
Beyond their mission-driven ethos, MDIs are different from other community and mainstream banks in several ways.
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MDIs are younger institutions
At the end of 2018, the median age of an MDI was 34 years, compared with 98 years for community banks. The relative youth reflects two forces. From 2008 to 2018, the net number of MDIs declined by 31%, shuttering many institutions that dated back generations.2 At the same time, newer MDIs have opened to meet community needs for investment. While some MDIs have legacies going back a century, more MDIs are needed to replace ones that have recently closed.
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MDIs are more likely to be urban
More than half of all MDIs are headquartered in the four most populous U.S. states: California, Texas, Florida and New York. Around 85% of headquarters are located in a metropolitan census area. Importantly, these MDIs have more than 1,500 geographically dispersed offices to help them reach more residents.2
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MDIs are commercial real estate specialists
Development is essential to community economic growth, and the lending focus of MDIs reflects that. Over time, MDIs have become go-to financers of commercial real estate. In 2001, fewer than 30% of MDIs were commercial real estate specialists. By 2019, 60% were.2
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Why JPMorgan Chase invests in MDIs
MDIs are critical to the economies of underserved communities. But since 2008, the number of MDIs—particularly Black MDIs—has steadily decreased. FDIC research found MDIs were about two and a half times as likely to fail as all other banks between 2001 and 2018.2
Challenges including higher expenses, limited budgets and capacity can weigh on MDIs. That's where investment and expertise from institutions like JPMorgan Chase comes in.
We’re proud to work with MDIs to help build wealth, promote economic activity and transform lives.
Furthering our commitment
Working with MDIs is just one part of our $30 billion Racial Equity Commitment to drive inclusive growth and close the racial wealth gap. We’re not only connecting MDIs with capital and solutions, but also expertise, resources and mentorship from across the firm to help them address their strategic challenges. To date, we've invested more than $100 million in capital with MDIs and CDFI banks across 20 states and Washington, D.C.
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JPMorgan Chase Bank, N.A. Member FDIC. Visit jpmorgan.com/cb-disclaimer for disclosures and disclaimers related to this content.
