Minority Depository Institution (MDI)

What Is a Minority Depository Institution (MDI)?

Minority depository institution (MDI) is a formal federal designation for banks and credit unions that are either owned or directed primarily by African Americans, Asian Americans, Hispanic Americans, or Native Americans. Under federal law, certain government agencies, such as the Federal Deposit Insurance Corporation (FDIC), are required to help preserve existing MDIs and encourage the establishment of new ones.

How Minority Depository Institutions (MDI) Work

The FDIC defines a minority depository institution (MDI) as, “a federal insured depository institution for which (1) 51% or more of the voting stock is owned by minority individuals; or (2) a majority of the board of directors is minority and the community that the institution serves is predominantly minority.”

It adds that, “Ownership must be by U.S. citizens or permanent legal U.S. residents to be counted in determining minority ownership.”

As of Dec. 31, 2021, the FDIC counted 143 MDIs across the United States and its territories, with collective assets of more than $325 billion. The minority status of those 143 financial institutions broke down as follows:

• Black or African American: 19
• Hispanic American: 31
• Asian or Pacific Islander American: 73
• Native American or Alaskan Native American: 18
• Multiracial American: 2

The majority of MDI banks are regulated by the FDIC, although some are regulated by the Office of the Comptroller of the Currency (OCC) or the Federal Reserve.

In addition to the institutions tracked by the FDIC, the National Credit Union Administration (NCUA) counted 518 MDI credit unions as of Dec. 20, 2021, with collective assets of more than $59 billion. The NCUA is the federal agency that insures credit unions' deposits and works to maintain their financial health, much as the FDIC does for banks.

Benefits of Minority Depository Institutions

Part of the rationale for supporting minority depository institutions, as the FDIC's Office of the Inspector General explained in a September 2019 report, is that they "play a vital role in assisting minority and under-served communities and are resources to foster the economic viability of these communities."

As evidence of that, a 2019 FDIC study entitled "Minority Depository Institutions: Structure, Performance, and Social Impact" found that MDIs originated a greater share of their home mortgages for minority borrowers and those living in low- and moderate-income census tracts, compared with non-MDI financial institutions. They also originated a greater share of Small Business Administration (SBA)–guaranteed small-business loans for such borrowers, compared with non-MDI financial institutions.

Financial institutions that qualify for MDI status become eligible for a wide range of training and educational programs, as well as technical assistance in such areas as compliance management, funding and liquidity, and information-technology risk management/cybersecurity. The FDIC and other agencies also provide technical assistance to groups interested in launching new MDIs and applying for federal deposit insurance coverage.

History of Minority Depository Institutions

While banks started and owned by members of minority groups have a long history in the United States, Congress formalized the term “minority depository institution” as part of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).

FIRREA defined “minority” as "Black American, Asian American, Hispanic American, or Native American."

The new law also set these five goals for the regulators responsible for MDIs:

1. Preserve the number of minority depository institutions
2. Preserve the minority character in cases of merger or acquisition
3. Provide technical assistance to prevent insolvency of institutions not now insolvent
4. Promote and encourage creation of new minority depository institutions
5. Provide for training, technical assistance, and educational programs.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in 2010 following the financial crisis of 2008, amended and expanded FIRREA. As a result of the Dodd Frank Act, the NCUA, the OCC, and the Board of Governors of the Federal Reserve System joined the FDIC in being responsible for preserving existing MDIs and encouraging the establishment of new ones. All of those agencies are now required to submit annual reports to Congress describing the actions they’ve taken to meet their goals.