Thursday, October 30, 2014

A Conversation with the FDIC

To my surprise, I was contacted recently by a representative from the FDIC, Federal Deposit Insurance Corporation, who was conducting a review of a local bank in Spokane. I had heard of the FDIC, (mostly when hearing or reading a bank advertisement, such as Member FDIC) but had never interacted with a representative before. 

The gentleman stated that he was performing a Community Reinvestment Act review of a bank and asked if I could participate in a short survey.  He said that part of the evaluation requirements are to interview a member of the community in which the bank is located, and he often chose to talk with SBDC business advisors since we have a variety of business clients, relationships with banks, and an overall impression of economic indicators and performance.

According to its mission, the Federal Deposit Insurance Corporation (FDIC) is an independent agency created by the Congress to maintain stability and public confidence in the nation's financial system by insuring deposits, examining and supervising financial institutions for safety and soundness and consumer protection, and managing receiverships.

The interviewer asked numerous questions about community economic development and banking conditions, general bank regulations, local credit unions and small business lending.  I don't remember the entire dialogue, but here are some of his questions and my replies, paraphrased:

Q:  What is your impression of the small business lending climate and general economic conditions?

A:  Some of the companies that made it through the recession are finally starting to breakthe easier.  Lending is still not easy for many small businesses, especially those start ups seeking small loans (under 100,000).  We know that banks are lending, yet we still have clients that are not able to get bank loans.  

Q:  Do you think bank lending requirements are clear?

A:  Yes, the requirements are usually pretty straightforward. There are a couple of challenges however.  First, a new business owner often does not understand the loan process or requirements or even how to apply for a business loan or line of credit.  A second challenge is that many small business owners have a hard time coming up with the owner cash contribution and in some cases, my clients have been given inconsistent information from lenders.  For example, I have had clients that were told they would need anywhere from 15-50% cash down from different lenders, or not informed of the capital requirements up front and were turned down for a loan.

Q:  Do you think the Spokane area banks are active in economic development and driving community and capital investment?

A:  Yes!  Not only are the local banks and credit unions active in the community, they are very strong supporters of community activities and small business.  There are some neighborhoods that are undergoing great re-development, such as the Perry Street District, and while a bank may not be opening a branch in that particular neighborhood, I know that they are lending to business owners to build and start new businesses.  The City also has made a dedicated effort to emphasize development in certain sections of town and has seen some success with that strategy.

Q:  Have you heard of any instances of minority or underserved populations being treated unfairly due to race, gender or other circumstances?

A:  No, I have not had clients that felt they were treated unfavorably due to race, gender or other minority standing.  Start-ups face an additional challenge in seeking financing and that can be sometimes an uphill battle; some banks will not fund a start-up or new business at all due to the riskiness. 

Final comments:  We also talked about the evaluation process and the interviewer mentioned that in some communities where there have been Community Reinvestment Act funds, he also speaks with representatives to identify housing needs and trends to get a comprehensive economic snapshot.

It was very interesting from my end to take part in the interview.  The FDIC site has a lot of informative articles, industry statistics and tools for borrowers, creditors and depositors. You can read more about the FDIC bank examination process on the agency website.