Dive Brief:

• The Federal Deposit Insurance Corp. (FDIC) launched a $120 million investment fund backed by Truist, Microsoft and Discovery, aimed at providing capital to minority depository institutions (MDIs) and community development financial institutions (CDFIs), the regulator announced Thursday.
• The investment vehicle, called the Mission-Driven Bank Fund, will channel private capital and other resources to institutions that primarily serve people of color, allowing them to invest in the communities they serve, the FDIC said. Truist and Microsoft will serve as anchor investors in the fund, while Discovery was named a "founding investor."
• "We're thrilled to be announcing the launch of the fund," FDIC Chair Jelena McWilliams told reporters during a press call Thursday. "Please understand that this is very unusual for the FDIC or any government agency. I like to joke that this isn’t your grandmother's FDIC, and this fund certainly proves that we like to think out of the box to figure out how best to help our MDIs and CDFIs that function in low-to-moderate income communities."

Dive Insight:

The FDIC said it consulted with 70 CEOs of MDIs and CDFIs and their trade groups, as well as potential investors, investment consultants and philanthropic organizations in its creation of the fund. 

"They all said they could use capital. They seem to get a lot of deposits from outside corporations and other businesses, but what they need is capital," McWilliams said the CEOs told her.

The regulator will retain an advisory role to support the fund’s mission focus, but will not manage, contribute capital, or be involved in the fund’s investment decisions, the FDIC said. 

"We basically leverage our brand, our name and our reputation to set up the fund, but the fund is going to be privately owned and run," McWilliams said.

McWilliams said she got the idea for a minority-focused investment fund after watching several episodes of the investing show "Shark Tank." 

"I watched the businesses come to pitch their ideas to the ‘Shark’ investors, and I thought, ‘Why not have a Shark Tank for minority banks?’" she said.

McWilliams said there are 280 FDIC-insured MDIs and CDFIs in the U.S. "We think that a significant number of those 280 institutions will be eligible for the funds," she said. 

For every dollar invested, the fund will be able to leverage about $10 in lending and investment in low-to-moderate income (LMI) communities, McWilliams said.

"Investment in these communities is going to be focused on whatever the MDI or CDFI brings to the fund in their pitch," McWilliams said, highlighting small-business lending, home ownership and mortgages in underserved communities as examples how the funds could be used. 

There is also a technical component to the fund, where investors will be able to offer technical assistance to the MDIs for CDFIs, McWilliams said.

"We're hoping that the fund is going to have longevity," she said, adding the fund is structured to focus on "patient capital."

"It's not going to be comparing itself to S&P or any other index," she said. "It will basically be driven by what the investments are doing in the community."

The fund provides a mechanism to allow private-sector corporations or philanthropic organizations to invest without having to negotiate one-off agreements with individual institutions, said Brandon Milhorn, McWilliams’ chief of staff. 

"We think it could be a real flexible benefit for corporations that want to help organizations that may have been concerned about the negotiation to set up their own agreements," he told reporters. 

The investments made through the fund are also in "a strong position" to potentially receive Community Reinvestment Act (CRA) credit, Milhorn said.