Do Minority-owned Banks Pay Higher Interest Rates on CDs?

Abstract

This paper analyzes whether minority-owned banks pass along an advantage in access to governmental deposits to the communities they serve in the form of higher interest rates paid on certificates of deposit (CDs). Although academic evidence has not confirmed increased profitability or efficiency of these banks since the creation of the Minority Bank Deposit Program, their unique positioning within communities may allow them to meet the needs of a clientele with lower and less stable income, and with higher than average expected future deposit withdrawals. Data from the regulatory reports provided by minority and non-minority owned banks are analyzed using five distinct time horizons for CDs. The results suggest that Black-owned banks consistently pay higher interest rates on CDs, with a lower premium for longer-term CDs, and used the premium to cushion the ill effects of the recent financial collapse on their customers. Asian-owned banks provide a smaller premium for short-term CDs, while the remaining category of minority-owned banks, including Native American, Hispanic, and Women-owned banks, also paid a premium on CDs, but shrank that premium substantially following the financial collapse. Note also that minority-owned banks may use this funding advantage in a variety of other ways to serve their respecitive communities.

ATM Fees at Black and Hispanic Owned Single Market Banks: A Comparative Analysis

“…A variety of evidence suggests that Black and Hispanic owned banks (BOBs and HOBs hereafter) behave differently than other banks. Historically, research suggests that these banks have lower measured efficiency (e.g., Iqbal et al 1999) and, more recently, the banks were found to pay rates on certificates of deposits that were above those of comparable banks Kashian et al 2014b. The analysis here extends that line of research by asking whether BOBs and HOBs charge distinct fees for ATM usage.…”

“…First, the relationship may disappear statistically once controls for bank size and poverty are included in the analysis, given those factors drive the hypothesis. Additionally, to the extent BOBs and HOBs attempt to fill the dual objectives of profitability and service to the community Kashian et al 2014b, they may in fact charge lower foreign fees and less often charge for balance inquiries to better serve their communities while sacrificing potential profits.…”

The role of specific heritage among Hispanic-owned banks in America

“…MDIs have been extensively studied, as researchers attempted to examine various characteristics of these institutions and whether they fulfill the FDIC's stated objectives for their promotion, that is, supporting economic viability and stability of the diverse ethnic communities that they serve (e.g. Black et al , 2003; Brimmer, 1971; Cole, 1985; Dymski et al , 2010; Kashian et al , 2014b; Kashian and Drago, 2016; Kwast and Black, 1983).…”

Black Progress through Business Improvement: Two Articles by Joseph R. Houchins, 1900–1989

“…These factors continue to reverberate. Kashian et al (2014) suggest that minority-owned banks (especially Black-owned banks) tend to offer higher rates on certificates of deposits than other institutions, in part to increase the liquidity in the minority communities. Encouragement of financial education at all levels continues unabated, as reflected in widespread efforts to present such education as a solution to Black business failures, while at the same time, access to capital for African American business remains challenging (Hamilton and Darity 2017;Robb and Fairlie 2007;Reuben and Queen 2015).…”