Equitable Access to Small Business Credit: Closing Reflection

SF Fed President Mary C. Daly offers a closing reflection at Equitable Access to Small Business Credit. October 14, 2021 (video, 7:28 minutes).

The views expressed are not necessarily those of the Federal Reserve Bank of San Francisco or of the Federal Reserve System.


  • Mary C. Daly, President and CEO, Federal Reserve Bank of San Francisco


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Well, thank you, Sean and thank you to everyone who was on the panel. The panelists have been just terrific. Thanks to the moderators for helping navigate this and thanks to all the listeners who participated in this program. And I’ve watched Twitter during the proceedings and people are really responding to that as well. Building these idea generation processes that was part of why we hosted this thing in the first place.

At the depths of the pandemic and even now, as I walk through, as I started the program by talking about going through my community in Oakland, it really is this time when you can focus in and you see what happens when people don’t have the access to capital they need. The businesses that were able to get that access, they had the earnestness, they had the hard work, they were there trying to figure out how to manage their business so that they could manage through COVID and still serve their communities and manage for their families.

So, they made it. And the ones that didn’t have that, they folded. So, I don’t think we have a shortage of ideas. We have a shortage of access to funding, and that’s what this has been about is learning how we can improve that situation so that it’s more equitable. And we are able to maintain businesses that didn’t die for any reason, other than they ran out of the funding that would’ve allowed their ideas to continue.

So, I’ve heard so many great ideas. I won’t be able to go through them all, but one of the things that I heard repeatedly that I want to highlight is that it’s time for us to rightsize what we ask of small businesses, to what financial risk that financial institutions are taking. So, I heard this time and time again. If we ask businesses to fill out paperwork and go through hurdles as if they’re getting a $12 million loan, and they’re actually getting a $12,000 loan, then we will limit access to capital that allows people to start small and grow big, and that will be bridling our economy.

So, rightsizing. That’s important for regulators to hear, for financial institutions, and for the private sector to hear. It’s really time for us to rightsize all of this and make sure that small businesses isn’t one label. It’s actually a heterogeneous group of people, and we’ve got things that fit those heterogeneous members. So, that’s one thing I heard that I really thought was worth highlighting.

Another is that we’ve got to get financial institutions the right incentives, and we have to make sure that we are talking to financial institutions do that. So, it’s not great for regulators to go and sit by themselves and even in their own silos and think up things. And then transactionally throw them over there, get public comment, come back and, “How did you feel about that? Let’s put this in.” It’s actually better to do the things that would allow us to brainstorm, to problem solve together, to find innovative solutions, ones that are not right in the boxes, right in the lanes we’re used to, but actually are thinking outside of the box and taking smart risks so that we can get somewhere faster than we would if we were letting everything have to be perfect before we could get anywhere.

I think one of the things I would put this is if we often let the perfect be the enemy of the good and that we think one size fits everything. And clearly neither one of those is going to get us where we need to be as quickly as we need to be there.

Another thing I heard is that we absolutely have to leverage technology, but that technology won’t be enough. We need technology, we need financial education, we need banks and financial institutions generally to really see that this is more than a philanthropic exercise to lend to a low and moderate income communities, or make sure that we have more equity by race and ethnicity in lending. It’s actually a value proposition for the economy, for the community, and for the future of the financial relationships, because as someone said right at the beginning, and it’s very true. By 2040, the majority of the US population is going to be of color.

And so if we’re not lending to those groups, then we’re losing market share regularly, and we’re not serving the communities that are a growing component of the economy. So, I couldn’t have thought of a better way to say that and that really is critical.

I want to pull on something that was just said, and that is that this won’t be something that any one group can do alone. It’s really going to take a partnership, a collaboration between the public sector and regulators, and even regulators among themselves and the private sector in banks and financial institutions and the community sector.

And one of the things that really came through for me in the pandemic is I probably did so many virtual, I can’t even imagine how many people I talked to. And it was invaluable because what I learned in talking to CDFIs and banking institutions around this PPP lending is that we need the CDFIs, the community groups, the people who are nearest the groups that we’re trying to serve to give us the information about what is the best way to reach those individuals because oftentimes we don’t know, and a community bank was a really great place for many to go, but many don’t have community bank resources.

And so, imagine what’s the fabric, what’s the portfolio of reach we need to have so that we ensure that we can get to everyone as opposed to taking it from a sort of institution perspective. It’s really what’s the portfolio of funding that we need to have and how do we get people to talk to each other in that, so that we don’t just do it in times of crisis, when it’s all hands on deck, we actually do it as part of normal business.

And I want to leave with one final thing that I want to add to this whole discussion and I think it was the spirit of what I heard. There’s two ways to look at things is that we have precious lending, that we will evaluate people, and we will see if they can get it. And so, it’s really all about saying, “No,” and only letting people through the gate. But what I’m hearing in a lot of what was said today is how do we get to yes? And if we just change our mindset and we think, “How do we get to yes,” there will still be times when someone’s not ready, that they’re not ready for a bank loan. They’re not ready for even a big loan, but that’s not saying, “No.” That’s saying, “Yes and. You can have a little one and you can get to something bigger later. Here’s how you’ll get there.”

But if we can change our mindset so that we’re saying, “How do we get to yes? How do we get to yes for these communities,” then I know we’ll find solutions that are going to push the envelope forward, and we’re going to end up a year from now, five years from now with a better outcome.

So, thank you so much for all of this, as Sean said, and many others have said, [inaudible] said, this is just the first, this is the listen and hear session. We take you to heart when you say, “Listen, and hear and involve us.” So, you’ll see us back with you with some ideas about how to do practical things. I’m all on board with let’s be more experimental and let’s be thinking about how we can get there faster by taking these small and smart risks.

So, thanks again, you’ll be hearing from us and I welcome any further input you have after you leave. If you have another idea, please send it to myself and our team. And nothing but gratitude for the event and look for us to come back to you with ideas to action. Thank you.