By Trevor W. Coleman
During a recent visit to Detroit the former Chairman of the Federal Deposit Insurance Company (FDIC), Martin J. Gruenberg, praised the management and role of the state’s only African American controlled financial institution, First Independence Bank, in helping underserved communities gain much-needed access to capital.
Citing its critical role in serving neighborhoods and residents who otherwise have difficulty obtaining loans from most commercial banks, Gruenberg said as a designated community development financial institution First Independence is a “mission-driven” institution focused on serving the people of Detroit.
“I think there is no question minority deposit institutions play a critical role in serving neighborhoods and residents who otherwise have difficulty getting access to mainstream financial services,” he said. “And for an institution like First Independence, that’s really the reason for their existence.”
Gruenberg served as Chairman of the FDIC during the Obama Administration and is a member of its Board of Directors. At a welcome reception at the Detroit Athletic Club hosted by Kenneth Kelly, the Chairman, and CEO of First Independence Bank, Gruenberg addressed an audience of business, banking, government, economic development, city and community leaders.
He said he traveled from Washington, D.C. at the invitation of Kelly who is a member of an advisory committee to the FDIC on community banking and at a recent meeting encouraged him to come to Detroit to see the work First Independence is doing.
And he was impressed.
“I think they’re successfully running the bank that’s doing well as a business and is very focused on the mission of serving the people of Detroit,” Gruenberg said. “So, both from a business standpoint and a mission and community standpoint, it seems to me that it’s really carrying out its responsibilities very effectively.”
Founded in 1970, the Detroit-based bank is one of 28 black-owned banks in the United States and the seventh largest according to the National Banking Association. According to the bank founders its mission “was established to serve the financial needs of our community, its businesses, and its citizens; no line of financial services is beyond our charter as long as we are serving the financial needs of businesses and families in our community … We will not make profits at the expense of our citizenship responsibilities.”
As of December 31, 2018, First Independence held about $260 million in assets, operated three branches, and employed 74 full-time workers. In addition to providing a full range of financial services, the CDFI provides affordable home improvement loans in distressed urban areas.
Kelly said what makes banks like First Independence different from other commercial lenders is that minority banks, in general, have a unique understanding of the lending needs of socially disadvantaged communities. So, focusing on those needs and special circumstances are part of the First Independence mission and business model.
He stressed while the bank’s lending practices have to be “firm” it takes a holistic approach in making its determination and risk assessment.
“Sometimes we have to see beyond the typical metrics and mission of why we have been in business, in order to build up communities that have been excluded,” Kelly said. “We reach a socio-economic stratum that most banks typically will be excluded”
Among the big projects First Independence has helped finance have been providing loans for non- warrantable condos in the newly renovated Book Cadillac building, loans for a condo conversion project in the New Center area and business loans in the Eastern Market area.
Many of the Minority Deposit Institutions (MDI) lend in typically low and moderate-income areas which pose greater risks, Kelly said. Which in turn makes such banks unique and are certified by the U.S. Treasury.
“It is a greater risk. That is a fact,” he said. “That’s part of the business model that makes it a little more challenging. And in many cases, several of those banks don’t make a lot of money.”
There are federal programs that have been supportive of that mission and provide lending programs and special grants for those efforts, Kelly noted. He cautioned, however, that support for institutions willing to take greater risks to serve neglected communities has “cooled over time.”
“What many institutions are having to do is reinvent themselves but remain true to their character while allowing for their business model to be the proper model,” he said.
Gruenberg acknowledged the unique challenges of community development financial institutions and said the FDIC has a special responsibility to support such lenders.
“We have a particular responsibility that’s actually in law to support and preserve institutions like First Independence,” he said. “So, I took it as a great opportunity to come to Detroit to visit to meet with Ken’s board and to get a better sense of the work that the bank is doing.”
Detroit City Council President Brenda Jones attended the reception and said having the former chairman of the FDIC visit at the request of the chairman of the First Independence sends a strong message to the larger community about the renewed viability of Detroit.
“It sends a strong, sound, message when you can get the (former) chairman of the FDIC to come to the city of Detroit …with so many things happening right now and Detroit continuing to grow as people continue to invest into the city,” she said.
Kelly agreed and said the city’s banking, business, and leadership across the board, made a very strong impression on Gruenberg.
“Thank you to all of the banking leaders and to all of Detroit for providing a warm reception,” he said. “We definitely gave him a Detroit welcome that he is taking back to DC with him.”