The profitability of African-American banks has generally been below that  of their peers in all size categories (fig. 3). As figure 5 indicates, many minority banks with  less than $100 million in assets had higher operating expenses than their  peers in 2005. Regulators Adopted Differing Approaches to Supporting Minority Banks, but Assessment Efforts Were Limited

FDIC has established the most comprehensive efforts among the bank  regulators to support minority banks and also leads interagency efforts to  coordinate agencies’ activities. While not required to do so by  Section 308 of FIRREA, OCC and the Federal Reserve have taken some  steps to support minority banks, such as holding occasional conferences  for Native American banks, and are planning additional efforts. Regulators Do Not Assess Efforts through Comprehensive Surveys or Outcome-Oriented Performance Measures

While FDIC has recently been proactive in assessing its support efforts for  minority banks, none of the regulators have routinely and  comprehensively surveyed their minority banks on all issues affecting the  institutions, nor have the regulators established outcome-oriented  performance measures. Survey of Minority Banks Identified Potential Limitations in Regulators’ Support Efforts and Other Regulatory Issues

Minority bank survey respondents 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 FDIC were generally more positive  about the agency’s efforts than other banks were about their regulators’  efforts. Some 36 percent of survey  respondents described the efforts as very good or good, 26 percent  described them as fair, and 13 percent described the efforts as poor or  very poor (fig. However, more than half of FDIC-regulated banks and about  three-quarters of the other minority banks responded that their regulator’s  efforts were fair, poor, or very poor or responded with a “don’t know.” In  particular, banks regulated by OTS gave the highest percentage of poor or  very poor marks, while banks regulated by the Federal Reserve most often  provided fair marks. For example, only about half of minority  banks regulated by FDIC and only about a quarter regulated by the other  agencies view their regulator’s support efforts as very good or good. First, although regulators  emphasize the provision of technical assistance services to minority  banks, less than 30 percent of such banks have recently used such  services. As part of these regular program assessments, the regulators may wish to  focus on such areas as minority banks’ overall views on support efforts,  the usage and effectiveness of technical assistance services (particularly  technical assistance provided to small minority banks and African- American banks), and the level of training provided to agency examiners  regarding minority banks and their operating environments. Appendix I: Objectives, Scope, and Methodology

The objectives of this report were to (1) review the profitability of  minority banks over time, (2) identify the federal banking regulators’  efforts to support minority banks and determine whether the regulators  were evaluating the effectiveness of these efforts, and (3) obtain the views  of minority banks on the federal regulators’ minority banking support  efforts and related regulatory issues. We created a list of the  population of minority banks by asking FDIC, Office of the Comptroller of  the Currency (OCC), Federal Reserve, and Office of Thrift Supervision  (OTS) for the names of all 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). To evaluate their efforts, as well as those of the Office of the Comptroller of the Currency (OCC) and the Federal Reserve, GAO (1) reviewed the profitability of minority banks, (2) identified the regulators' support and assessment efforts, and (3) obtained the views of minority banks on the regulators' efforts. GAO reviewed financial data from FDIC, interviewed regulators, and surveyed all minority banks.

What GAO Found

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. 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 have adopted differing approaches to supporting minority banks, but no agency has regularly and comprehensively assessed the effectiveness of its efforts. FDIC--which supervises over half of all minority banks--has the most comprehensive support efforts and leads interagency efforts. OTS focuses on providing technical assistance to minority banks. While not required to do so by Section 308 of FIRREA, OCC and the Federal Reserve have taken some steps to support minority banks and are planning others. Although FDIC has recently sought to assess the effectiveness of its support efforts through various methods, none of the regulators comprehensively surveys minority banks to obtain their views or has developed outcome-oriented performance measures. Consequently, the regulators are 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 emphasize 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.