To help support minority depository institutions and community development financial institutions advance in digital transformation, policymakers and regulators must address bottlenecks that limit growth, according to a recent report by National Bankers Association Foundation. The report on digital opportunities for mission-based banks identified multiple barriers facing the institutions as they seek to upgrade their technology, including up-front costs, implementation issues including with current staff ability or capacity, burdens from increased risk management and regulatory compliance requirements, and deepened dependency on core providers and other third-party vendors who may not prioritize the needs of smaller clients.
The report had three recommendations for policymakers. First, policymakers should amend current provisions involving bank holding company policies to allow for non-dilutive equity investments from publicly traded companies that will enable banks to grow their lending footprint through digitalization. Second, bank supervisors and regulators should allow MDIs and CDFIs to allocate more of their capital toward investing in technology and digitalization, including for use in partnerships with financial technology firms or other third parties. Third, building off the success of initiatives like the Treasury Department’s Emergency Capital Investment Program, policymakers should continue to pursue new ways of driving capital into MDIs and CDFIs including through investment programs, tax credits and annual appropriations.
“Corporate and philanthropic partners also have an important role to play in supporting mission-driven banks,” the report said. “These stakeholders can provide technical assistance, loan their executives to mission-driven banks for a fixed term to help oversee implementation of new strategies or technologies, provide access to software or other forms of technological support, and more.”