Showing posts with label Yellen. Show all posts
Showing posts with label Yellen. Show all posts

Thursday, June 17, 2021

MDIs, CDFIs, and the Mosaic Theory; Is Positive Change on the Horizon? by Andrew Taber, Impact Investing Analyst


On June 15th, several American financial and political leaders convened in distinct discussions concerning the future of Minority Deposit Institutions (MDIs) and Community Development Financial Institutions (CDFIs). At a White House press conference, a Federal Deposit Insurance Corporation (FDIC) Board meeting and MDI policy statement release, in a House Financial Services Committee statement, and a Georgetown University forum with an all-star cast, minority lending was the conversation of the day. Utilizing the Mosaic Theory, Creative Investment Research contends that the convergence of these events may not be a coincidence, and may signal a significant policy change.

We note that the MDI events of June 15th were preceded by a June 14th meeting of the California Public Employees’ Retirement System (CalPERS) Investment Committee. Of particular relevance was a progress report on the Fund’s Sustainable Investment 5 Year Strategy Plan. Fund management discussed diversity and inclusion that synched with the MDI discussions of June 15th. We further note that important financial organizations like CalPERS are prioritizing corporate board diversity in the investments they make. The Fund’s strategic corporate governance principles allow them to directly impact and improve board diversity. Overall diversity trends are positive, as both gender and racial board diversity appear to be increasing across S&P 500 companies. While the examples provided by the Fund focused on gender diversity, it is clear that large pension funds, like CalPERS, value and are pushing for increased corporate board diversity. This discussion simply highlights simultaneous policy moves outlined on the following day, and provides a context for why we think these change are both significant and positive. 

On June 15th, the White House brought Vice President Kamala Harris, Treasury Secretary Janet Yellen, and the Chairwoman of the House Financial Services Committee, Maxine Waters, together with Senator Mark Warner, and Opportunity Finance Network CEO Lisa Mensah to announce the release of $1.25B in funding to CDFIs and MDIs. Their discussion focused on the importance of financial equity and the disproportionate effect that the Covid-19 pandemic and ensuing recession has had on communities of color. The fact that these impactful and important American policy makers all gathered on one day signaled a push towards improved inclusion through direct financial investment. Representative Waters, in particular, made it clear that, while $1.25B in community development funding was historic, it is only the beginning. This was seconded by Senator Warner, who, after discussing inequities in venture capital and the decline in the number of Black banks after the 2008 recession, explained that not only will there be $1.75B more in direct community investments to come, he calculated that a $9B investment in these institutions should lead to $90B in community lending through gearing. This is certainly a significant moment, heightened by other events of the day.

The Federal Deposit Insurance Corporation released a “Statement of Policy Regarding Minority Depository Institutions.” In this policy statement, the FDIC outlined its prior efforts to support MDIs and reviewed the unique challenges these institutions face. The FDIC MDI Policy statement updates the public on steps the FDIC is taking to enhance its MDI program. Responding to commenter queries, the agency clarified several of its goals. In particular, the statement notes that the FDIC will assist and support new and existing MDIs through education programs and technical assistance. Of particular interest, the FDIC will try to preserve equity even in failing institutions by helping qualified MDI institutions merge, as opposed to being purchased by non-MDI financial institutions. 

As an independent agency, the FDIC’s statement demonstrates a renewed commitment on the part of the American government to increase financial equity, assist minority-led institutions, and support communities of color that have been ravaged by the COVID pandemic and by centuries of inequity.

These two events tied directly to the Georgetown University and Black Economic Alliance forum titled “Can Black and Brown Banks Compete in a Digital Economy?” The event included many important voices, including Representative Maxine Waters, Senator Mark Warner, and FDIC Chair Jelena Williams. These policymakers spoke at the Georgetown forum after the White House MDI event. While Rep. Waters and Sen. Warner reemphasized several of the points they made earlier in the day, they also emphasized the importance of technology for Black banks. Additionally, they noted that the shocking decline in Black banks and MDIs since 2008 is particularly problematic given the pandemic; communities hit hardest by Covid-19 are losing the institutions that serve them best. Chairman McWilliams drove this point home, explaining the crucial role non-minority banks need to play by forming partnerships with MDIs. Currently, many Black banks are not capturing economies of scale required to continue to operate. She punctuated her remarks by describing the current FDIC as “not-your-grandmother’s-FDIC”, signifying that a policy shift has occurred and implying that the FDIC will do more to improve financial access in minority communities that have been historically abandoned and excluded. 

The Georgetown event had important takeaways as well. A clear theme concerned the role of technology. While many claim that technology is inherently unbiased and thus increased financial technological development and automation should reduce inequalities, several of the speakers at the Georgetown event warned that racism is so ingrained in the American system that discriminatory practices, whether intentional or not, may be coded into new technological financial tools. Thus, technology solutions should be targeted and carefully crafted, and should have reliable and accountable governance practices imbedded. Other steps must be taken as well. For instance, Comptroller of the Currency Michael Hsu suggested revitalizing MDIs, and second, getting all American credit scores higher. This push towards supporting MDIs was seen across all of the events. 

Creative Investment Research contends that the Mosaic Theory may apply here. The Mosaic Theory is described as the idea that multiple independent sources of information can collectively be used to support a larger claim and infer an overall conclusion. The mosaic theory is commonly used in investment research to assist with valuation. In this case, the combination of discussion and statements by the U.S. Vice President, the Chairwoman of the House Financial Services Committee, the Secretary of the Treasury, the Chairman of the FDIC, and a plethora of other important financial and policy experts, actors, and organizations on the importance of Minority Deposit Institutions, on the same day, may be more than a coincidence. That is, while it is entirely possible that the $1.25B in MDI and CDFI funding announced on the 15th may stand alone, when considered in conjunction with the White House event and the FDIC policy statement., it appears that MDI and CDFI investment is solidly on the policy agenda; these actors seem to be moving collectively, or even preemptively, and other important and significant policy changes are forthcoming. The $1.25B may be just the beginning. 

Creative Investment Research optimistically looks forward to seeing what may come in the following days and weeks, as improving equity and supporting Black and Brown banks are pivotal to our mission; if Black banks and MDIs continue to close with little support, American inequality will only increase. However, if the American political regime continues to prioritize these markets and institutions, with consideration and accountability, positive change may be on the horizon. 

Andrew Taber, Impact Investing Analyst

Editor: William Michael Cunningham

Sunday, February 4, 2018

Black Unemployment Jumps to 7.7%

Five days after the trump administration proclaimed that "African-American unemployment stands at the lowest rate ever recorded,” the US Department of Labor reported on Friday that Black unemployment for the month of January jumped to 7.7%.

As we noted on 12/30/17 in our Fully Adjusted Return Economic Forecast summary,

"Black unemployment falls at the end of a sustained period of domestic economic growth and falls with a decline in immigration. This is counterbalanced, however, by increasing racism in general and specifically negative, anti-Black racial attitudes. Given an increase in the latter, we expect Black unemployment to increase toward the end of 2018, despite positive headwinds from reduced immigration."

Note that our June 11, 2016 Fully Adjusted Return Election Forecast also correctly predicted Donald Trump's win, and can be found at:

For the full 2018 Economic forecast, please join us at 6 pm on February 13, 2018 (1/9/2018). RSVP at

Also see: Why Janet Yellen is wrong on Black unemployment, published on July 17, 2015, at

Saturday, February 13, 2016

Five Key Takeaways from Yellen's Monetary Policy Testimony

Federal Reserve Chair Janet Yellen testified on Capitol Hill on Wednesday and Thursday.
Five Takeaways from Yellen's Testimony She appeared before the House Financial Services Committee and the Senate Banking Committee. We attended both hearings. Here are the key points:

1. An undercurrent of protest from both the left and the right (Google #whoserecovery) is beginning to have an impact on monetary policy. See the photo above of protesters at both hearings. We have issues with both the left and right wing versions. The right is simply crazy. The left is financed by labor unions. I can guarantee that none of the black folks in the photo of protestors at the hearings below are well paid. Their labor union managers, most of whom are white, are. (Can you say rock and a hard place?)

2. At the start of the Senate Banking Committee hearing, Senate Banking Committee Chairman Richard Shelby unveiled a letter from 30 economists who support implementation of the Taylor Rule, a mechanical approach to monetary policy that sets limits on the ability of a central bank to respond to economic conditions. We note two things:
  • Not one of these economists accurately predicted the financial crisis. (We did, BTW.)
  • Ms. Yellen pointed out that no central bank anywhere in the world uses the "Taylor Rule" or anything like it. None. This should be enough to end the conversation. It won't.
3. The Fed's current balance sheets equals 20% of the U.S. economy. In essence, the Fed stepped in to rescue the economy. From our perspective,  this confirms, as the Chair noted, that Fed independence and Fed accountability are NOT mutually exclusive.

4. When Senate Banking Committee Ranking Member Sherrod Brown asked for information on which groups (by race, gender and sector) have fared better during the recovery, Ms. Yellen indicated she had no data on which to base a response. She then went on to claim that most of the benefits of the economic recovery have flowed to the better educated portion of the workforce. Again she has no data to support this contention. Thus, her statement is both unscientific and prejudicial.

5. Her key statements on current economic conditions and monetary policy are as follows:
  • Financial conditions are less supportive of growth. Both the dollar and interest rates are up, and lower oil prices do not seem to be meaningfully impacting growth prospects. 
  • The recovery in the housing sector is ongoing. Prices, and activity are both up. 
  • Consolidation in the banking industry is also ongoing. This results in fewer and fewer banks, less competition, and less beneficial terms for bank customers. (We suggest people start looking at Credit Unions..)
  • The Fed looked at implementing negative interest rates (that's where you pay the bank to hold your money..) but rejected this approach. The Fed is taking a fresh look at implementing monetary policy that implements negative interest rates, however.
  • She noted that economic "expansions do not die of old age." They die because of policy mistakes. We agree.