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?