Many minority banks are located in urban areas and seek to serve distressed communities and populations that have traditionally been undeserved by financial institutions. For example, after the Civil War banks were established to provide financial services to African-Americans. More recently, Asian-American and Hispanic-American banks have been established to serve the rapidly growing Asian and Hispanic communities in the United States. In our review of regulators’ lists of minority banks, we identified a total minority bank population of 195 for 2005 (table 1). Table 2 shows that the distribution of minority banks by size is similar to the distribution of all banks by size. More than 40 percent of all minority banks had assets of less than $100 million. Each federally insured depository institution, including each minority bank, has a primary federal regulator: FDIC, OTS, OCC, or the Federal Reserve. The primary regulator for each bank is determined by the institution’s charter (table 3). As shown in table 4, FDIC serves as the federal regulator for over half of minority banks—109 out of 195 banks, or 56 percent—and the Federal Reserve regulates the fewest. The primary responsibilities of federal banking regulators include helping to ensure the safe and sound practices and operations of the institutions they oversee, the stability of financial markets, and compliance with laws and regulations. To achieve these goals, among other activities, the regulators conduct on-site examinations, issue regulations, conduct investigations, and take enforcement actions. Regulators may also close banks that are deemed to be insolvent and pose risks to the Deposit Insurance Fund. FDIC is responsible for ensuring that deposits in failed banks are protected up to established federal deposit insurance limits. Banking regulators primarily focus on ensuring the safety and soundness of banks, but laws and regulatory policies can identify additional goals and objectives. Recognizing the importance of minority banks, under Section 308 of FIRREA, Congress outlined five broad goals that FDIC and OTS, in consultation with Treasury, are to work toward to preserve and promote minority banks. These goals are preserving the present number of minority banks; preserving their minority character in cases involving mergers or acquisitions of minority banks; providing technical assistance to prevent the insolvency of institutions that are not currently insolvent; promoting and encouraging the creation of new minority banks; and providing for training, technical assistance, and educational programs. Technical assistance is typically defined as one-on-one assistance that a regulator may provide to a bank in response to a request. For example, a regulator may advise a bank on compliance with a particular statute or regulation. Regulators may also provide technical assistance to banks that is related to deficiencies identified in safety and soundness or compliance examinations. In contrast, educational programs are typically open to all banks regulated by a particular agency or to all banks located within a regulator’s regional office. For example, regulators may offer training for banks to review compliance with laws and regulations. Most minority banks with assets exceeding $100 million were nearly as profitable—measured by ROA—as their peers in 2005 as well as in earlier years, or had levels of profitability that have historically been considered adequate, according to our analysis of FDIC data. However, small minority and African-American banks of all sizes (which together account for about half of all minority institutions) have been significantly less profitable than their industry peers. Our analysis and other research has suggested some possible reasons for lower profitability among some small minority banks and African-American banks, such as higher reserves for potential loan losses and higher operating expenses. The results of other studies we reviewed were consistent with these findings, and minority banks that we spoke with offered additional explanations, such as the effects of increased competition from larger banks. However, overall officials from banks across all minority groups were positive about the financial outlook of their institutions. Many found their minority status to be an advantage in serving their communities—for example, in communicating with customers in their primary languages. As shown in figure 1, most minority banks with assets exceeding $100 million had ROAs in 2005 that were close to those of their peer groups, while many smaller banks had ROAs that were significantly lower than that of their peers. Minority banks with more than $100 million in assets accounted for 58 percent of all minority banks, while those with less than $100 million accounted for 42 percent. Each size category of minority banks with more than $100 million in assets had a weighted average ROA that was slightly lower than that of its peers, but in each case their ROAs exceeded 1 percent. By historical banking industry standards, an ROA of 1 percent or more has generally been considered an adequate level of profitability. We found that of these larger minority banks, Hispanic- American, Asian-American, Native American, and women-owned banks were close to, and in some cases exceeded, the profitability of their peers in 2005. Overall, small minority banks (those with assets of less than $100 million) had an average ROA of 0.4 percent, and their peers had an average ROA of 1 percent. Our analysis of FDIC data for 1995 and 2000 also indicated some similar patterns, with minority banks with assets greater than $100 million showing levels of profitability that were generally close to those of their peers, or ROAs of about 1 percent, while minority banks with assets of less than $100 million showed greater differences with their peers. Further, in 2000 the Chairman of FDIC discussed the agency’s finding that many small minority banks lagged in profitability. According to FDIC’s analysis, nearly 70 percent of small minority banks reported an ROA in 1999 of under 1 percent, and nearly 40 percent reported an ROA of less than half the industry average. Among small minority banks, African-American, Asian-American, and Hispanic-American banks had ROAs that were significantly lower than those of their peers, while the ROAs of small Native American and women- owned banks were closer to those of their peers (fig. 2). For example, the ROA for small Asian-American banks in 2005 was 0.10 percent and Hispanic-American banks’ ROA was 0.65 percent, compared with their peers’ ROA of 1 percent. Our analysis of FDIC data for 1995 and 2000 showed similar results, with small African-American, Asian-American, and Hispanic-American banks in particular having significantly lower ROAs than their peers. The profitability of African-American banks has generally been below that of their peers in all size categories (fig. 3). African-American banks with less than $100 million in assets—which constitute 61 percent of all African-American banks—had an average ROA of 0.16 percent, while their peers averaged 1.0 percent. Similarly, African-American banks with assets of between $100 million and $300 million—which constituted 26 percent of all African-American banks—had ROAs that were 75 percent lower than those of their peers. While profitability improved among larger categories, the profitability of African-American banks with assets of $300 million or more was lower than that of their peers. Our analysis of FDIC data for 2000 and 1995 also found that African-American banks of all sizes had lower ROAs than their peers. For example, in 2000 African-American banks with assets of between $100 million and $300 million had an average ROA that was about half of their peers’ average of 1.2 percent. Our analysis of 2005 FDIC data suggests some possible reasons for the differences in profitability between some minority banks and their peers. For example, our analysis of 2005 FDIC data showed that African- American banks with assets of less than $300 million—which constitute 87 percent of all African-American banks—had significantly higher loan loss reserves as a percentage of their total assets than the average for their peers (fig. 4). Although having higher loan loss reserves may be necessary for the safe and sound operation of any particular bank, because loan loss reserves are counted as expenses, higher reserves lower bank profits. Most Asian-American, Hispanic-American, Native American, and women-owned banks had loan loss reserves that were closer to the average for their peer group in 2005. We also found some evidence that higher operating expenses may affect the profitability of some minority banks. Operating expenses— expenditures for items such as administrative expenses and salaries—are typically compared to an institution’s total earning assets, such as loans and investments, to indicate the proportion of earning assets banks spend on operating expenses. As figure 5 indicates, many minority banks with less than $100 million in assets had higher operating expenses than their peers in 2005. Specifically, the average ratio of minority banks’ operating expenses to earning assets was 4.88 percent, compared with an average 3.86 percent for the peer group, or a difference of 21 percent. Small African-American and Asian-American banks had higher operating expenses than their peers (41 and 20 percent higher, respectively), while operating expenses for small Hispanic-American banks were closer to their peers (7 percent higher). Data on the operating expenses of small women-owned banks were lower than their peers, while Native American banks had higher operating expenses, although, as we have seen, both Native American and women-owed banks were the most profitable of small minority banks. Because larger African-American banks were relatively less profitable than their peers, we also reviewed FDIC data on their operating expenses in 2005. The FDIC data indicate that African- American banks with assets of between $100 million and $500 million had operating expense ratios that exceeded those of their respective peer groups by 20 percent or more. Other studies corroborated our findings that some minority banks operate in more challenging markets and may face higher operating costs. Officials from several minority banks we contacted also described aspects of their operating environments and business practices, including a focus on customer service that could result in higher operating costs. In particular, the officials cited the costs associated with providing banking services in low-income urban areas or in communities with high immigrant populations.