How Banks Actually Work

Most people believe banks are simple businesses: they take your deposits, make loans, and profit from the difference. But the truth is, without federal deposit insurance, banks wouldn’t exist — at least not the way we know them today.

Core Points:

• FDIC insurance is the oxygen of the banking system. It isn't just "nice to have" — it's what gives banks access to inventory (deposits).

• In exchange, banks give up sovereignty. They operate under intense regulation, where the government can shut them down instantly if they fail basic tests of "safety and soundness."

• This creates a delicate balance: banks must be risk-averse by design, but that also means they're structurally resistant to serving communities that fall outside traditional metrics.

Minority Banks (MBs) and the Trap:

• Minority Banks are founded with noble intentions — to serve communities historically denied financial access.

• But they are trapped between mission and math: pressured to lend into riskier environments without adequate first-loss protection.

• As a result, MBs disproportionately fail, not because they are poorly run, but because the system demands they behave like a for-profit enterprise and a nonprofit at the same time — an impossible mandate.

The reality: banks aren’t free agents. They’re licensed caretakers of public trust. And when you expect a mission-driven bank to survive without changing the system, you're setting it up to fail.