Senator Scott introduces bill to expand access to capital for community banks

This week, U.S. Senators Tim Scott (R-S.C.) and Maggie Hassan (D-N.H.) introduced a bill to improve the ability of smaller community banks to meet the credit needs of the local families, workers, and small businesses they serve.

“This bipartisan bill empowers smaller, local banks to compete with bigger banks for deposits,” said Senator Scott. “As we saw throughout the pandemic,  rural and minority business owners faced especially difficult challenges finding lending options. Increasing access to capital at local banks that serve lower-income borrowers and rural communities will help expand financial opportunities for the hard working families, farmers, and small business owners who live there.”

The Minority Deposit Institution and Community Bank Deposit Access Act clarifies existing Federal Deposit Insurance Corporation (FDIC) policy to establish that that under safe circumstances, well-capitalized community banks, minority deposit institutions (MDIs), and community development financial institutions (CDFIs) can accept custodial deposits without facing additional regulatory requirements or scrutiny. By resolving this regulatory uncertainty, the bill promotes the inflow of third party deposits to small community financial institutions rather than the country’s largest banks, allowing these deposits to be reinvested into underserved communities. The bill also allows minority credit unions to access the National Credit Union Administration’s Community Development Revolving Loan Fund.

Background:

• Community banks, community development financial institutions (CDFIs), and minority deposit institutions (MDIs) play a disproportionately large role in extending access to financial services and capital for underserved communities. These institutions represent approximately 98% of the number of banks in the United States, but hold only 17% of the banking system’s deposits.
• CDFIs deliver at least 60% of their total lending, services, and other activities in low-income communities.
• Community banks, despite holding only 17% of the banking system’s assets, extend 53% of all the small business loans made by banks.