In this month’s Econ Extra Credit film, we depart for a moment from our usual documentary selection and instead look at a Christmas classic: It’s a Wonderful Life. operates Bailey Brothers Building and Loan, which operates as a
Buildings and loans are mostly gone now, but not the concept of community-driven finance. In New York City, one such institution is the Carver Federal Savings Bank. The bank has been designated by the federal government as a community development financial institution and a minority depository institution. Founded in the 1940s by members of the city’s predominantly black neighborhood, the bank says it is headquartered in Harlem and seeks to help develop traditionally underserved communities. .
In an interview with Marketplace’s David Brancaccio, Carver President and CEO Michael Pugh said: “By having [a] When customers trust Carver to deposit, those funds are used holistically to keep the community alive and thriving. ”
Below is an edited transcript of their conversation.
David Brancaccio: What you see in movies — famous holiday movies — these buildings and loans don’t exist. What is the point of having such a designation?
Michael Pugh: of course. As such, Community Development Finance Institutions (CDFI) is a designation of the US Department of the Treasury. Also, one of the CDFI’s key threshold requirements is that 60% of deposits must be reinvested in the communities they serve. This is primarily aimed at supporting the economic empowerment and overall improvement of the community. We are very proud to be a CDFI, but because it happens to be a black-controlled financial institution, we are considered a minority depository institution by federal standards. Our dual status, CDFI and MDI, gives us a very unique position throughout New York City and, arguably, across the country.
Brancaccio: So from a practical standpoint, if a savings customer comes to you and hands you $500 for safekeeping, what do you do with that money? Do you want to make it easy to get
Pew: Well, within Carver, we are very proud that 80 cents of the deposit will be reinvested in the communities we serve. And it does so through several different methods to help provide loans at affordable interest rates to borrowers, especially small businesses within our community. , workshops for workforce development, etc. By having its customers make deposits and trusting Carver, those funds will be used to collectively help keep the community alive. and prosper.
Brancaccio: Mr. Pew, is Carver a non-profit organization or a for-profit organization?
Pew: So it’s actually a for-profit entity. The company is a financial institution and publicly traded on the NASDAQ. The advantage there is that interested people, especially members of our community, can participate in the growth of the organization due to the nature of being a publicly traded company. But I think the unique proposition for us is that even though we are for profit, we have this mission element that allows us to keep thinking on both sides of our brain. Mission and margin in every decision we make. For example, when we offer loans, we’re not only looking at pricing that makes sense from a unit economics perspective, but we’re also looking at important things like how much more jobs SMEs add to the core market. do we serve? We understand that the communities we serve have historically been underserved communities and opportunities to catalyze change while delivering favorable value for our shareholders. there is.
Brancaccio: What is your view on risk when it comes to investments a financial institution makes? So if you’re just looking for the least risky place to invest for a financial institution, it may not always be local But there is this filter for community well-being.
Pew: Now, I found something interesting here. Customers within our core markets who choose our bank and who really understand our mission and what we are trying to do, we want to give them great service and keep them When helping, they make a concerted effort even during times when payments are difficult. I often joke that if a small business owner could run into me or one of my co-workers’ girlfriends at the grocery store and I know I haven’t paid my loan, I’d default on my loan. It means that it is difficult to loan. We are hyperlocal, so our colleagues live in the communities we serve. We believe these personal relationships and access to us can really help reduce your risk significantly.
Besides that, let me give you an example. During the pandemic, so many customers and so many people within our community have chosen to bank with some of the larger financial institutions. [members] They chose banks when they were unable to access decision makers to help them during very difficult times. Those who went to several large financial institutions who applied for loans were unable to complete their loan applications and needed assistance. As such, they were left out of the first round of funding that was made available.
Second round of fundraising [was] Many of those same individuals came to Carver when it became available. We were also able to provide $55 million to provide small businesses with access to capital at the local level. More importantly, we were able to retain over 5,000 jobs. So to tie it to risk, all (100%) of these loans have already been forgiven or are in the process of being forgiven or repaid. The risk to us was negligible. Because we are hyperlocal focused and looking to help communities ensure their needs are met.
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