	In Brief

Our analysis of FDIC data showed that while the profitability of most  minority banks with assets greater than $100 million nearly equaled the  profitability of all similarly sized banks (peers), the profitability of smaller  minority banks and African-American banks of all sizes did not. Our analysis of FDIC data identified some possible  explanations for the relatively low profitability of some small minority  banks and African-American banks, such as relatively higher reserves for  potential loan losses and administrative expenses and competition from  larger banks. The bank regulators have adopted differing approaches to supporting  minority banks, and, at the time of our review, no agency had assessed the  effectiveness of its efforts through regular and comprehensive surveys of  minority banks or outcome-oriented performance measures. FDIC— which supervises more than half of all minority banks—had the most  comprehensive program to support minority banks and led an interagency  group that coordinates such efforts. OCC and the Federal Reserve,  while not required to do so by Section 308 of FIRREA, undertook some  efforts to support minority banks, such as holding occasional conferences  for Native American banks, and were planning additional efforts. Furthermore, none of the other regulators  comprehensively surveyed minority banks on the effectiveness of their  support efforts or established outcome-oriented performance measures. Consequently, the regulators were not well positioned to assess the results  of their support efforts or identify areas for improvement. About one-third of survey  respondents rated their regulators’ efforts for minority banks as very good  or good, while 26 percent rated the efforts as fair, 13 percent as poor or  very poor, and 25 percent responded “do not know.” FDIC-regulated banks  were more positive about their agency’s efforts than banks that other  agencies regulated. However, only about half of the FDIC-regulated banks  and about a quarter of the banks regulated by other agencies rated their  agency’s efforts as very good or good. Although regulators may emphasize  the provision of technical assistance to minority banks, less than 30  percent of such institutions said they had used such agency services  within the last 3 years. Therefore, the banks may have been missing  opportunities to address problems that limited their operations or  financial performance. OCC and  the Federal Reserve had also hosted events for some minority banks. Survey of Minority Banks Identified Potential Limitations in Regulators’ Support Efforts and Other Regulatory Issues

Minority bank officials we surveyed identified potential limitations in the  regulators’ efforts to support them and related regulatory issues, such as  examiners’ understanding of issues affecting minority banks, which would  likely be of significance to agency managers and warrant follow-up  analysis. Minority banks regulated by OCC and the Federal  Reserve reported similarly low usage of technical assistance services. Regulators Recently Have Taken Steps to Assess and Enhance Their Minority Bank Support Efforts, but It Is Too Soon to Assess Their Effectiveness

Our 2006 report recommended that the bank regulators regularly review  the effectiveness of their minority bank support efforts and related  regulatory activities and, as appropriate, make changes necessary to better  serve such institutions.
Why GAO Did This Study

Minority banks can play an important role in serving the financial needs of historically underserved communities and growing populations of minorities. For this reason, the Financial Institutions, Reform, Recovery, and Enforcement Act of 1989 (FIRREA) established goals that the Federal Deposit Insurance Corporation (FDIC) and the Office of Thrift Supervision (OTS) must work toward to preserve and promote such institutions (support efforts). While not required to do so by FIRREA, the Board of Governors of the Federal Reserve System (Federal Reserve) and Office of the Comptroller of the Currency (OCC) have established some minority bank support efforts. This testimony, based on a 2006 General Accountability Office (GAO) report, discusses the profitability of minority banks, regulators' support and assessment efforts, and the views of minority banks on the regulators' efforts as identified through responses from a survey of 149 such institutions.

What GAO Found

GAO reported in 2006 that the profitability of most large minority banks (assets greater than $100 million) was nearly equal to that of their peers (similarly sized banks) in 2005 and earlier years, according to FDIC data. However, many small minority banks and African-American banks of all sizes were less profitable than their peers. GAO's analysis and other studies identified some possible explanations for these differences, including relatively higher loan loss reserves and operating expenses and competition from larger banks. Bank regulators had adopted differing approaches to supporting minority banks, but no agency had regularly and comprehensively assessed the effectiveness of its efforts. FDIC--which supervises over half of all minority banks--had the most comprehensive support efforts and leads interagency efforts. OTS focused on providing technical assistance to minority banks. While not required to do so by FIRREA, OCC and the Federal Reserve had taken some steps to support minority banks. Although FDIC had recently sought to assess the effectiveness of its support efforts through various methods, none of the regulators comprehensively surveyed minority banks or had developed performance measures. Consequently, the regulators were not well positioned to assess their support efforts. GAO's survey of minority banks identified potential limitations in the regulators' support efforts that would likely be of significance to agency managers and warrant follow-up analysis. Only about one-third of survey respondents rated their regulators' efforts for minority banks as very good or good, while 26 percent rated the efforts as fair, 13 percent as poor or very poor, and 25 percent responded "don't know". Banks regulated by FDIC were more positive about their agency's efforts than banks regulated by other agencies. However, only about half of the FDIC-regulated banks and about a quarter of the banks regulated by other agencies rated their agency's efforts as very good or good. Although regulators may have emphasized the provision of technical assistance to minority banks, less than 30 percent of such institutions have used such agency services within the last 3 years and therefore may be missing opportunities to address problems that limit their operations or financial performance.