It is probably safe to assume that most of the readers of this publication
have a familial history of entrepreneurship. Be it in retail, agriculture,
light manufacturing or some type of service, many of us could tell stories
of how our immigrant ancestors got started in the "new country."
These stories, of course, continue to play out today as new immigrants
and refugees find their way into the U.S. economy.
However, those stories are more than just family lore. The details within
those entrepreneurial tales form the basis for an understanding of how
businesses develop and grow. Such knowledge is important if we hope
to provide a business and financial environment that allows equal opportunity
for all, and the United States has a number of laws and policies aimed
at that goal. But those entrepreneurial details are elusive—available
data is usually after-the-fact and offers little insight into choices
made at startup—and without such data we cannot adequately measure
whether our programs are effective.
For the Federal Reserve banks, this subject has particular currency
because we, under the authority of the Community Reinvestment Act of
1977, must encourage commercial banks to help meet the credit needs
of the communities in which they operate, including low- and moderate-income
neighborhoods. Sounds pretty straightforward, but localized credit markets
are complicated by a host of dynamics, not least of which is the cultural
and economic background of many of the residents.
This is especially true of the neighborhoods of Minneapolis and St.
Paul, where the Hmong have been settling for more than 25 years. These
inner-city neighborhoods were made even more diverse by the arrival
of these Southeast Asian refugees, most of whom knew no English nor
had any experience living in a Western culture, let alone a market-based
economy. How, then, would these people fare within the formal credit
markets of the U.S. banking system? Or, to focus the question the other
way, how would banks respond to this new community within their neighborhoods?
You'll have to read the following essay for
the answers, but one thing's for sure, the research effort described
in this year's Annual Report has given us insight into more than just
how much access the Hmong in Minneapolis-St. Paul have to bank credit,
it has also provided a deeper understanding of how credit markets work.
Some of those lessons go beyond the local neighborhoods described here
and apply to other lending markets—that's one of the benefits of
this type of research. It's not an end in itself, but the beginning
of a broader understanding of credit markets.
Finally, this year's Annual Report includes a photo essay of the Minneapolis-St.
Paul Hmong community. The scenes depicted in these photos—education,
entrepreneurship, family support and community involvement—reflect
the key themes described in the written essay and provide a richer understanding
of this ethnic community's place in the Twin Cities. In other words,
the photo essay helps to illustrate those stories that have formed the
basis of our analytical research. I hope you enjoy reading this year's
Annual Report, and we welcome your comments.
Gary H. Stern
Annual Report Essay:
Between Two Worlds: How Do Credit Markets Work?