According to the Federal Reserve, Black Americans are the most likely of any racial group to be unbanked or underbanked.
While 2.1% of white Americans have no savings or checking account, 11.3% of Black Americans are unbanked, said the latest FDIC survey.
Moreover, Black folks face the highest denial rate for mortgages.
According to 2021 Home Mortgage Disclosure Act data, 15.3% of Black Americans were denied mortgages, compared to 6.3% for non-Hispanic white Americans.
Historically, black people have faced discriminatory banking practices and systemic racism, such as redlining, in the US. However, the financial gap between black and white Americans is still real in the States. Black business owners, for example, have claimed to face difficulties in securing funding when they began expanding their business.
The struggle to find capital isn’t new, and the COVID-19 pandemic before and geopolitical turmoils have exacerbated the challenges faced by minority-owned businesses.
To resist this inequality, Black-owned banks have emerged across the US, providing economic security for disenfranchised Black communities that have long been underserved by financial institutions.
Moreover, great companies, such as Netflix, or sport associations, such as the NFL, are investing large amounts of money on them.
Supporting Financial Inclusion
It was on March 3, 1865, the US Congress, together with President Abraham Lincoln, established one of the first black-owned banks, the Freedman’s Bank, in the country after the end of the American Civil War.
The bank aims to aid the black community, black-owned private organizations, churches, and charities, about financial literacy, and enable them to establish their financial strength. After centuries, Black banks have the same purpose.
So, what makes a Bank Black-Owned? Today, few Black-owned banks continue to support many African-Americans as a wealth-building tool.
They provide loans particularly to small businesses, churches, and other community organizations in the black communities.
More specifically, Black-owned banks are depository institutions where Black people own 51% or more of the stock. These financial institutions are typically located in communities of color and provide a source of local economic support.
“You have to peel back the onion to see why [we got] to where we are. When you do that, you will find this history of discriminatory practices and redlining neighborhoods is directly related to economics” quoted Kenneth Kelly, chairman and CEO of $291 million-asset First Independence Bank in Detroit and immediate past chairman of the National Bankers Association, which represents minority-owned banks. “While those things may not appear to matter 60 to 70 years later, they fundamentally do. They set the stage for the transfer of assets from one generation to another and the quality of education for those neighborhoods”.
When Cultural and Financial Gap are Moving Together
Black-owned banks typically focus on lending to Black homeowners, small businesses and nonprofit organizations like churches.
And though these banks focus predominantly on Black communities, non-Black individuals and companies are welcome to become customers.
Opening an account with a Black-owned bank as an ally can be a great way to support its mission of closing the wealth gap in America.
Large commercial banks do operate in most Black communities, taking deposits and making some loans. A basic problem many Black communities face is that lending can require an in-depth knowledge of those communities, something traditional banks often lack.
Lenders should provide a certain range of tolerance for greater risk and long-term investing for banks to realize a profit in a Black community, where incomes tend to be below the national average and the opportunities for profitable investment may be fewer and not as obvious. But American larger banks have little knowledge of these communities and tend to make only the safest loans.
Black Banks are going Digital
According to data, 70% of African Americans don’t have a bank branch in their neighborhood, they are much further away from the American Dream. It means that Black-owned banks have been dwindling in number.
But customers who don’t live near a branch can often take advantage of digital banking services offered by some of the banks.
Today, historic "brick-and-mortar" Black banks such as OneUnited or the nation's oldest continuously-Black-owned bank, Citizens Saving Bank and Trust Company, have launched digital components providing for online banking as part of their portfolio of services.
However, according to experts, it’s time now to invest in Black-owned banks. As recently stated by the FED, despite millions of dollars shuffled from startup and investor bank accounts housed in the collapsed Silicon Valley Bank to the JPMorgans, Brexes and Wises of the world, minority-owned banks in the country have stayed resilient during this year's industry turmoil.
What’s Next? A Database for Black Banks
In 2020, Stephone Coward II decided to launch BankBlackUSA, which acts as a database of 40 Black-owned financial institutions and offers an app to help consumers find and compare Black-owned banks and credit unions.
But the site and app also provide other resources that help consumers identify ways to establish financial health, develop economic stability and build wealth using Black-controlled financial institutions.
This includes investment in Black-owned banks and company stocks, and access to Black-controlled investment platforms.
“Our initiatives connect Black people and their allies to networks and activities nationwide related to financial empowerment” Coward says in one interview to Forbes. “We also provide Black banking news, education and other resources to promote individual, collective and local action to accelerate cooperative economic growth within Black communities.”
Challenges and Opportunities
Black-owned minority depository institutions play a vital role in closing the racial wealth gap in the United States. However, those banks are still facing different challenges today. First, Black-owned MDIs are woefully undercapitalized.
The four largest banks in the US each have more than 1.6 billion dollars in assets. Only two Black-owned banks have more than 1 billion in assets.
By gobbling up all the deposits, they end up crowding out the smaller banks that know their depositors.
It’s clear that Black banks have not benefited from the same level of support from the government and big business that major banks have received.
However, the US Congress is investing $12 billion into minority depositories through the Emergency Capital Investment Program.
According to ABC, in July, the Economic Opportunity Coalition pulled together $1 billion in private sector funding. In addition to that funding, Washington encourages federal, state and local governments to make deposits in Black and minority banks.
In 2020, a bill was introduced in Congress by a handful of Senate Democrats to make discrimination in the banking industry explicitly illegal for the first time. The bill has been sitting in the congressional Committee on Banking, Housing, and Urban Affairs.
Black Americans know that those banks are not the last solution panacea for closing the racial wealth gap or ending systemic racism in the US. However, they are a starting point, a useful tool in a multipronged approach to improving the financial stability of Black communities.
