What are Banks Doing to Address the Impacts of COVID-19 on LMI Communities? Early Approaches to Addressing the Crisis

Lessons from history show that those who are most disadvantaged before a disaster are likely to be most vulnerable during a disaster as well as on the road to recovery. As the novel coronavirus continues to spread, we are witnessing heavy impacts on low- and moderate-income communities as small businesses shutter, workers are laid off, and more and more households find themselves in unexpected financial circumstances. Low-income individuals and households are more vulnerable to illness and potential economic disruption for a variety of reasons, including lower availability of paid sick leave and ability to work from home, less wealth or savings to dip into in case of emergency, higher transmissibility due to larger household sizes, greater social interaction between the young and elderly, higher likelihood of underlying health conditions and weakened immune response due to toxic stress, and lack of health insurance to cover the cost of preventive doctor visits and prescriptions. Banks play a key role in helping to alleviate the economic impacts of COVID-19 and have been encouraged to leverage their Community Reinvestment Act (CRA) activities in their response, as described in this interagency guidance from the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency. In the early days following the spread of COVID-19, the Federal Reserve Bank of San Francisco sought to understand bank response in order to share emerging and best practices for greater scale and impact across the field. For this research brief, we conducted semi-structured interviews with community development officers across financial institutions in the Twelfth Federal Reserve District, collected additional responses via email, and examined a subset of online resources posted by banks to get a pulse on the early response of CRA-motivated institutions.1 We asked about changes to lending, services, and investments, whether the recent CRA guidance had spurred any changes to the ways banks were operating, how banks were prioritizing growing need, and ways banks were being responsive to evolving community conditions. We found that in the short weeks following spread of COVID-19 in the United States, community development officers are involved in immediate response, including implementing operational changes and giving to local nonprofit organizations to address basic needs in their communities. Many respondents are leveraging existing relationships with community partners to better understand short- and longer-term need. Overall, we found that while many are eager to support communities in need, many others are hesitant to take action in the short term in the midst of such uncertainty. While many expressed eagerness for more innovation and adoption of new approaches, these approaches are still emerging. Below we explore these themes in greater detail.