In response to the coronavirus pandemic, the Federal Reserve has taken extraordinary actions to support the economic and financial stability of the nation, including the establishment of a number of lending facilities to improve access to credit and liquidity for affected businesses and communities. At the same time, community engagement remains critical to informing the Fed’s work, and a major area of concern is how the COVID-19 crisis is affecting low-income communities and people of color. To spotlight this critical issue, which is deeply influenced by existing financial and economic disparities, the New York Fed launched a new event series called “The Fed and Main Street,” which convenes business, community development, nonprofit, and policy leaders to focus on the effects of the COVID-19 crisis and efforts to support the recovery.
The aim of these events is to discuss the challenges faced by vulnerable communities and highlight opportunities to work together toward an equitable economic recovery. The series kicked off on April 23 with “The Fed and Main Street During the Coronavirus Pandemic,” followed by “Too Important to Fail: Minority-Owned Businesses Navigating COVID-19 and Beyond” on May 27. The third event in the series, “The Immigrant Experience during COVID-19,” will be held on June 11.
Voices of the Community
At the April 23 event, community leaders highlighted the current and imminent funding gaps for underserved segments of the population, as well as the critical role that community development financial institutions (CDFIs) and other socially responsible capital providers can play to support the recovery. Here are key takeaways from the conversation:
- A major concern for community leaders is that low-income communities — particularly communities of color — face unique challenges that prevent them from benefiting from the stimulus programs that rely on access to traditional banking. Joe Neri, president and CEO of IFF, said that participating bank lenders default to a “common sense filtering system” that prioritizes existing customers with established relationships and skews away from the smallest and most fragile businesses and nonprofits, which are disproportionately owned or led by people of color. These organizations, therefore, are less likely to survive the crisis. With the aim of breaking this cycle, IFF is expanding beyond its existing portfolio and participating in the Paycheck Protection Program as a lender. The CDFI is also intentionally lending to nonprofits that have been turned away by other lenders.
- Similarly, the Economic Impact Payment program primarily relies on banks to support the fast delivery of payments. Jonathan Mintz, president and CEO of the Cities for Financial Empowerment Fund (CFE), pointed out that unbanked individuals, who are disproportionately people of color, must wait to receive paper checks, a process that may not be completed until September. The delay is “counterintuitive to the point of emergency stimulus,” Mintz said. In response, CFE has compiled a list of affordable accounts that can be opened online to access the stimulus payment. CFE also has developed a partnership with the IRS and FDIC to drive users to the proper IRS portal.
- Community leaders also called for stimulus programs and other interventions to be inclusive of nonbank lenders. Socially responsible providers of capital and services like CDFIs and nonprofit organizations have a proven record of supporting low-income communities and people of color, but are strained by the growing demand for their services and liquidity constraints. Lisa Mensah, president and CEO of the Opportunity Finance Network, highlighted the role of CDFIs in the COVID-19 crisis and said CDFIs needed additional support to continue their work, noting at that time that they were ineligible to participate in the Paycheck Protection Program Liquidity Facility (PPPLF). “We’re thankful for the Fed stepping in and providing liquidity to the financial system, but the pipes that are trusted for the communities that can move this are ineligible.… We urge the Fed to move on admitting us to be allowed lenders…into the PPP Liquidity Facility at the Fed,” Mensah said. (See below for more on the PPPLF.)
- Speakers also called for increased support for the nonprofit sector and underscored the role of socially responsible capital providers in addressing funding gaps. Sheena Wright, president and CEO of the United Way of NYC, said the nonprofit sector is not well positioned to accommodate additional work, especially in a moment when demand for services is “through the roof in terms of the overwhelming new number of people in need of services that nonprofits provide, and capital is shrinking in all the ways that we know.” Wright called for the development of new and innovative funding models to support the nonprofit sector that enable better access to capital markets and help nonprofit organizations diversify their funding streams beyond traditional sources such as grants, government contracts, and philanthropic investments.
- Anna Fink, executive director of the Amalgamated Foundation, which works in partnership with Amalgamated Bank, discussed the charity’s approach to establishing programs to support underserved populations and how socially responsible capital providers can collaborate to address funding gaps. The Amalgamated Foundation partnered with the Ford Foundation, the Open Society Foundation, and the JPB Foundation to establish the Families and Workers Fund. The fund focuses on two priority areas: direct relief for families and workers navigating through the crisis, and policy advocacy that increases the accessibility of additional relief packages. “We’re bringing an equity lens to this grant-making strategy.… We’re also engaged in a lot of conversations about the next phase of recovery across partners in philanthropy and mission‑oriented finance to consider structural responses that will require us to stretch outside of our traditional constraints,” Fink said.
- Finally, community leaders advocated for increased support for cities and states. In the housing sector, “the pandemic has visibly exposed the massive racial inequities in the United States and made clear that to create a just society, everyone must have a home that is safe, healthy, and connected to good jobs, schools, and healthcare,” said Judi Kende, vice president and New York market leader at Enterprise Community Partners. While mortgage payment forbearance and eviction moratoriums might help keep families in place for the short term, Kende argued that substantial funding for federal and local housing initiatives is needed to stabilize the housing market in the long term. States and cities, in particular, also need increased support to address significant losses in tax revenue.
Federal Reserve Actions Related to COVID-19
Since the onset of stay-at-home orders, the Federal Reserve’s community development teams have focused on gauging the local effects of the crisis through conversations with partners.
Gathering timely information enables us to shape our approach to helping the communities we serve. In March, the New York Fed developed a COVID-19 Community Resources page to help individuals, businesses, and nonprofits identify available resources at the federal, state, and city levels. In April, we highlighted the importance of CDFIs in mitigating the economic challenges of the pandemic. And the Federal Reserve System released “Perspectives from Main Street: The Impact of COVID-19 on Communities and the Entities Serving Them,” a report spotlighting the scope and scale of challenges brought about by the pandemic.
A deeper understanding of communities’ needs also helps inform the Federal Reserve’s policy responses, including the Main Street Lending Program, which benefited from outreach to banking organizations and midsize businesses. Other actions taken by the Federal Reserve assist stakeholders that play a critical role in supporting local communities. The PPPLF has expanded its eligibility criteria to qualified non-depository institutions, including CDFIs that have expertise in quickly disbursing capital to low-income communities. The Municipal Lending Facility was launched to help support state and local governments in providing critical public services. And recent regulatory and supervisory actions were designed to limit the potential for the traditional financial system to magnify the economic effects of the pandemic and to protect consumers and small businesses.
Beyond these measures, the New York Fed has emphasized its commitment to hearing from and working with a diverse set of stakeholders, including community representatives, to offer broad support during this crisis.
Supporting an Economy That Works for All
The world has changed significantly since the start of the pandemic, and our commitment to supporting communities across the Second District has never been more relevant. The perspectives of our community partners have always been instrumental in the New York Fed’s efforts to foster economic mobility. These voices are even more important now as households and local businesses navigate the complex economic consequences of the pandemic.
The Federal Reserve seeks to support an economy that enables every American to have equal opportunity and access to critical resources. We remain committed to listening to communities and leaders working on the front lines to support struggling workers, businesses, and communities.
“Conversations like this one are vital because they help inform our thinking and guide our approach,” New York Fed President John Williams said. “We must understand how this pandemic is affecting our communities, so that we can support them as they weather this storm. This has always been part of our mission at the Fed, and now has renewed importance.”
— With assistance from Edison Reyes, who contributed to the takeaways.
This article was originally published by the New York Fed on Medium.
The views expressed in this article are those of the contributing authors and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.