As the United States prepares for a new administration with its own set of priorities, it is important to remember the purpose of government policies: to benefit and provide for the good of the people. This is, unfortunately, something that we all know has not always been true throughout the history of America.
We have seen this most recently with Opportunity Zones. These originated in within the Tax Cuts and Jobs Act of 2017, and were created to spur economic development and job creation in low-income communities while also providing tax benefits to investors. Made with good intentions, these did not work for minority communities and stakeholders. In fact, it only led to accelerated gentrification in lower-income communities, which, as we know, is unlikely to help most minority businesses and individuals. On top of that, the government didn’t do their research or listen to opponents’ feedback in advance of passage or collect information after – which did attract more than 8,700 opportunity zones – leaving communities providing personal anecdotes on the negative impact.
Now, multiple federal agencies are considering new rules in a similar manner; rules with plenty of unintended consequences, without considering all that might be affected, and without researching the potential fallout.
The FDIC recently closed the comment docket on a new rule that would impose changes to the Change in Bank Control Act (CBCA). The change would expand the FDIC’s scope to include investments in banks by passive index funds by requiring asset managers to obtain authorization from the FDIC for ownership of 10% or more of regulated bank’s stock. In my public comment submitted to the FDIC, I questioned whether these changes to the CBCA are necessary and wonder if the FDIC has fully explored if they would create a rippling effect of restricted capital that will affect the entire market – especially as it relates to underserved communities.
A different agency, the Federal Energy Regulatory Commission (FERC), is considering revising its policy on providing blanket authorizations for investment companies under the Federal Power Act. Currently, investment companies apply for this "blanket authorization" to acquire and hold over $10 million (and/or 10% ownership) of multiple public utilities every three years and are vital investors in public utilities and infrastructure projects. The possibility that FERC will be constraining utilities access to capital is problematic to the entire nation, but especially minority communities that still experience racial disparities in access to vital utility services. And though these are entirely different agencies and proposed rules, they both can have a very similar impact on minority communities.
As co-founder and CEO of the Financial Services Innovation Coalition (FSIC), a growing network of industry innovators, legislators, community groups, and academics who share a passion for applying emerging technology and market innovation to create a more inclusive economy and advocate for policy that promotes economic empowerment in underserved communities, we have initiated and administered studies and programs related to solving problems experienced by those who are poorly served by the financial services industry.
After reviewing both proposed rules, I worry the downstream effects of these policies will restrict access to capital and predominantly impact historically disadvantaged communities. Given many of these communities and institutions are already severely underfunded, giving financial institutions more of a reason to neglect them is not in anyone’s best interest.
If the FDIC rule is implemented, it could also make it more challenging for banks to raise capital and increase the costs for them, and us as end consumers, when they do so. Similarly, if these firms need to pass greater hurdles for FERC authorization for transactions involving public utilities or public utility holding companies, it will make it more difficult for them to invest in and ultimately stifle infrastructure projects. These realities make it easy to see how this will ultimately impact underserved communities. They will be the first ones to be turned away when banks and projects don’t have funds.
I have no doubt these agencies are proposing these rules with good intentions, but the probability of underfunded banks and projects impacting minority communities as a result of these rules stifling investments during an administration’s lame duck period is serious cause for concern. It’s vital that all potential – even unintended – outcomes are considered before ushering in unnecessary rules like these.
Historically underserved communities are so because they have not been typically considered during these processes. We must ensure they are considered during administrative rulemaking processes.