FDIC, Microsoft, Truist to create fund to invest in minority-owned

The Federal Deposit Insurance Corp. will unveil this week a new investment fund backed by corporate giants that will offer stakeholders a way to channel much-needed capital to banks owned by and in support of people of color.

The new Mission-Driven Bank Fund will exclusively invest at banks that service minority, lower-income and rural communities that often suffer from a lack of long-term capital, according to documents seen by CNBC.

The project represents the latest government-backed effort to support minority-owned banks, which have struggled in recent decades because of failed loans, competitors that are larger as a result of  mergers and acquisitions, and financial downturns that have an outsized impact on smaller banks.

“One of the things that I heard in the beginning, and in particular for Black banks, was a lack of capital. Finding good capital to come to the banks was the No. 1 thing,” FDIC Chair Jelena McWilliams told CNBC on Monday.

Microsoft and Truist Financial are so-called anchor investors in the fund, each putting in tens of millions of dollars to help it launch. The fund, also supported by media giant Discovery, has raised approximately $120 million to date.

The fund’s conception and design also implicitly endorse a new school of thinking on the best ways to support minority-owned, community-focused banks that center on the importance of long-term “patient” capital.

Longer-term investments — such as equity or debt financing — allow lenders greater flexibility to lend capital to borrowers at a profit, the main moneymaking lever for consumer and small-business banks.

Minority bank advocates hope that more million-dollar corporate deposits or a greater number of certificates of deposit will buy smaller banks enough time to not only generate profits but also to help rectify race-based economic inequities.

McWilliams said her early work on the fund included conversations with small bank CEOs about how the federal government could best help them in their mission to boost homeownership and business formation among communities of color.

“This fund is supposed to leverage the investments from others under the brand of the FDIC,” she said, “and then allow every dollar to be multiplied exponentially for the benefit of homeowners and small businesses and credit in the communities where it is needed the most.”

Founded in the aftermath of the Great Depression of the 1930s, the FDIC is perhaps best known as one of the nation’s top bank regulators, and it insures American consumers against sudden deposit losses at member banks. In an effort to prevent “bank runs” through deposit insurance, the FDIC ensures that member banks meet a variety of financial…