More banks, not more regulation, key to minority business growth

We just came to the end of Black History Month — the first since the pandemic began — and we face a sobering set of unsolved challenges. Over 1.3 million African-Americans have contracted the coronavirus. It’s devastated families, damaged communities, and ruined progress.

A year ago Black-owned businesses were gaining a real foothold in the economy, powering a roaring recovery. COVID-19 has dealt them a severe setback.

It is exactly the wrong time to lay down new financial barriers to success.

The top priority for community banks has been getting Paycheck Protection Program (PPP) loans quickly to distressed small businesses. But some in Washington are focused more on regulation than relief. Dave Uejio, acting director of the Consumer Financial Protection Bureau (CFPB), has promised to “reverse” policies “that weakened enforcement and supervision.”

Reimposing such policies now would impede relief and reduce banking options for consumers.

More banks, not more regulations, is the answer.

Small banks have proven extremely responsive and efficient in this crisis. As FDIC Chairwoman Jelena McWilliams put it, they were the “first responders” of the economy, demonstrating what cannot be replicated by an online presence alone or larger banks.

Community banks have delivered the lion’s share of PPP loans in Pennsylvania, an average of $112,000 each to more than 158,000 small businesses. Nationwide, community banks processed two-thirds of PPP loans.

And they’ve received high marks. Community banks regularly beat the big banks in customer preference; nearly 80 percent of small-business loan applicants express satisfaction.

Small banks are a huge part of the solution. Yet they’re overlooked by those in power. Approval of new bank charters has slowed to a crawl. Only about 35 nationally have been granted since 2010, while hundreds of banks merge annually.

Since 2001, the small-banking sector has shrunk dramatically. The number of black-owned financial institutions has fallen by half.

It is unacceptable that only 3 percent of the nation’s banks are minority-owned, or that the typical African-American family has one-eighth the wealth of its white counterparts. Many lack the capital to cushion the shock of a crisis.

According to the Small Business Administration, years of higher interest rates and loan denials have led some Black business owners to not even consider applying for assistance. A disproportionate number of African-Americans do not use banks at all.

Red tape and outdated regulations will not improve bank access for minorities nor will it spur the creation of new banks in communities of color, or anywhere else.

Community banks worked hard to overcome the botched rollout of the PPP, which initially bypassed many minority-owned enterprises. Problems accessing the federal portal, combined with confusing and ever-changing rules, further delayed applications.

Community banks urged federal agencies to waive reporting requirements that were slowing down aid. They sought modified repayment plans, extended due dates, and longer lines of credit to prevent closings and layoffs.

Some welcome changes have been made. But we cannot risk going backward. Every day that quarantines are in place, more small businesses are shuttered and more of our neighbors are laid off.

During the pandemic, community banks have sought to make banking as seamless and stress-free as possible. They expanded drive-through hours, strengthened hygiene protocols to protect employees, and made special arrangements with customers who needed personalized banking services.

It will take time to get back to normal. But normal does not mean business-as-usual. Bankers must reach beyond their comfort zone to adopt new ideas and find new customers.

Changing our perspective can change attitudes.

President Joe Biden recently announced reforms to make PPP loans more accessible to underserved borrowers. To its credit, the CFPB has pledged to hold banks accountable if they commit discriminatory practices in processing loans.

That’s a start. But it’s not enough.

Washington must broaden its vision of banking in the 21st century. Returning to the regulatory policies that reduced the number of community banks by nearly half won’t help.

Kevin L. Shivers is president and CEO of the Pennsylvania Association of Community Bankers, founded in 1992.


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