Big banks and major corporations like Yelp, Netflix and Microsoft announced major
investments in black owned banks.
Well, black banks have gained an additional $1.5 billion in lending power since the death of
George Floyd, created by a $150 million increase in equity c
apital. These banks attempt to help the so-called banking deserts, or typically minority
neighborhoods where brick and mortar banks are far and few between.
You know, in a perfect world, you wouldn't have the racial wealth gap, and so you wouldn't have the
discrimination that created black-owned banks in the first place.
People of color African-Americans in this conversation were
historically barred from accessing financial goods and financial
services.
Discrimination is still there, but it just looks differently.
It's not as blatant. It's not just on face value, but there are other things like credit
scores,
And the black bank really kind of emerged as a way of meeting some of
those needs.
Black owned banks are so critical when it comes to supporting r
acial equity initiatives and the black and African-American community.
Black banks are far from thriving.
Americans who identify solely as black or African-American make up
13.4% of the U.S. population today, but less than one percent of all FDIC insured
banks are considered black owned.
Are black banks struggling? Yes, the banks reflects the community in which they are in.
So whatever the struggles are of the community, the banks have the same struggle because
they're enmeshed in that community.
They cannot change it unless the community itself has more wealth.
So why are black owned banks key to ending racial disparity in America?
And what do they need to succeed?
The history of banking in America is riddled with incidences of systematic racism.
Terms like redlining originate from banking practices that segregated populations of color by
denying loans for housing.
While the federal government eventually stepped in to resolve financial discrimination with legislation
like the Fair Housing Act of 1968 and the Community Reinvestment Act of 1977,
experts say that the banking industry still has a race problem.
The country has a race problem, one that is rooted in wealth and power, which are
largely synonymous.
Nowhere are decisions about who gains and controls wealth more concentrated
than in the banking and finance sector.
We are not far away from the subprime crisis where Wall Street went to target
black and brown communities with their worst loans.
The people who were sold a subprime loan could have been eligible for a prime loan.
The financial crisis wiped out about 53% of the wealth in the black communities,
and that's wealth that hasn't been recovered.
I think we still see problems that are inherently baked into how we decide who gets loans or
baked into how we invest in community.
Redlining is still there.
Green lining is still there because most of the regulations, having been one is focused around the
fiduciary duty and the stability of the bank, not how they act in the
community.
Accessibility is a big issue.
Black neighborhoods have seen a disproportionate number of bank branch closures compared to white
neighborhoods. Between 2010 and 2018, the number of banks in majority black
neighborhoods decreased by 14.6%.
The disparity is even starker for major companies like JPMorgan and Bank of America.
JPMorgan decreased its branches in majority black areas by 22.8%,
compared to a net decline of just 0.2% in the rest of the U.S.
For Bank of America, it was 29.1%, compared to
18.4% in non majority black neighborhoods.
In total, JPMorgan closed fifty five branches and Bank of America closed ninety
five branches in majority black areas within the span of eight years.
When asked for comment, JPMorgan replied that as part of their $30 billion commitment to addressing
racial equity, they've opened new branches in black, Hispanic and Latino neighborhoods and offer
free financial health and home buying workshops.
Bank of America said that 36% of its financial centers are now located in majority
minority neighborhoods, with $1.25 billion invested in advancing
racial equality and economic opportunity.
None of us are above having to go to a local bank once in a while to make deposits
to take out cash
And it's void. Oftentimes, what we'll see is one of two things either we will see no
availability to liquidity that is that there's no other place for people of
color to actually access their money or.
And just as perversely, we'll see higher prices for that liquidity, that is that
we'll see higher interest rates even, you know, in excess of, say, 20
% or 30% in order to actually access money.
Researchers have also shown that discrimination in loan denial and cost have not declined
over the years in spite of regulations that were designed to prevent them.
It is legal because of how we have defined risk tolerance, our interest rates or charge.
It's legal for myself to be charged more than my white peer.
And so I think that discrimination is still there, but it just looks differently.
It's not as blatant. It's not just on face value, but there are other things like credit
scores that people use or geographic location or asset
value of your home.
The way that race has been used to provide
subsidies for some communities and not other communities, and the way that discrimination works
insidiously has affected so profoundly black homeownership,
which is much lower than white homeownership.
Black wealth accumulation, which is 12 to 1, 10 to 1,
regardless of income, and that is 100% on account of these
racist credit policies and home ownership.
That's where black-owned banks come in.
Banks and credit unions must be federally designated as a minority depository institution
by the FDIC to qualify as being black owned.
MDIs Must either have 51% or more of their shares owned by minority
individuals or a majority of its board members are minorities, and the community that
it serves is predominantly minority as well.
As of 2021, there are 146 minority depository institutions in
America. 20 of them qualify as being black or African-American owned.
It allows people to have a certification and legitimately, one,
signal to the larger community, they are there to help them; Two, really put some guardrails
because these institutions, particularly much like CDFIs, are designed to serve communities that have
been historically overlooked and underserved.
So I would say the benefit of that certification is giving visibility to those folks.
And I think it's also kind of elevated the fact that that institutions and certainly the federal
government believes that MDIs have a vital role in society
Besides this designation.
Black owned banks work very similarly to traditional banks.
They provide mortgages, loans and insured bank accounts.
What does make them unique is their mission to bring equality to banking,
providing affordable financial services and education to people that need it the most.
When a bank has a branch in a community, people are more likely to
get access to financial institutions and black banks.
Black credit unions are more likely to locate in black communities.
From a business decision, I completely understand if you follow the negative data that exist about us, why
would a bank come? But obviously that's when the presence of black banks realized "No no no, I
don't believe everything I read, and I see that there's massive home ownership from
prior grandparents.
I see that people are going to work every day."
Black owned banks also support the economic life of the communities they serve by providing
much needed loans for small businesses, nonprofits and black homebuyers.
We found that in the aftermath of the Great Recession, that black banks on average actually
expanded their mortgage credit access at a time in which
arguably many financial institutions were actually fleeing the lending space.
But I think the second part is, you know, we're beginning to hear anecdotes encouragingly that
black banks are beginning to look to develop what are called special purpose credit facilities.
These types of facilities will give more flexibility to all institutions,
but including black banks that will allow them to provide credit to people who
have been demonstrated to have been historically disadvantaged or communities that have been
historically disadvantaged.
The number of black owned banks has dwindled immensely over the years.
Are black banks struggling?
Yes, the banks reflects the community in which they are in.
So whatever the struggles are of the community, the banks have the same struggle because
they're enmeshed in that community.
They cannot change it unless the community itself has more wealth and
has more access and and we have less discrimination as a society.
Between 1888 and 1934, there were 134 black owned banks to
help the black community.
Today, there are only 20 black owned banks that qualify as minority depository
institutions, while people who identify as solely black or African-American
make up 13.4% percent of the U.S.
population, black owned banks consist of less than 1% of all FDIC
insured banks in the United States.
I think part of it has to do with the broader trend in the banking community.
That is that overall we're seeing the number of banks overall declining and assets being
concentrated, particularly in your larger global and more
complex financial institutions.
Black owned banks still lack the assets needed to compete against major players.
One United bank manages over $650 million in assets as the
biggest black owned bank in America.
In comparison, JPMorgan and Bank of America each managed asset portfolios that are
worth well over $2 trillion dollars.
So the size of assets really determines what they're able to do from a lending and investment perspective,
which then, of course, drives how innovative they can be.
It talks about leads to margins in the bank and how many people can show up and what's the staffing
look like and all of those kinds of things.
And obviously, it's a big regulatory marker that people look on.
There's a stability and health of the institution.
To combat these concerns.
Several big banks and corporations have invested heavily in black owned banks following the death of
George Floyd. More recently, Microsoft and Truist Financial backed
fdic's new fund to invest in minority owned banks, each putting in tens of
millions of dollars to help its launch
With Microsoft's impact investments, we always evaluate
investments on impact first, then risk than return.
So really, the driver here is what impact can we drive?
The FDIC and Truist have been critical partners in driving this
forward for mission driven bank.
Most experts remain cautiously optimistic about the recent investments made to black owned
banks, but agree that there is still work to be done.
I think every corporation needs to look inside their own
practices and see where they can themselves remedy some of the
historic wrongs that they have done.
So it is great news when I hear about big banks and big corporations saying We're going to
donate into black owned banks.
A better way to get access would be to look at the way that their institution has helped
propagate has helped perpetuate the racial wealth gap.
And to fix. To repair.
To apologize for.
But what's most important to the survival and success of black owned banks is the support and
attention from average consumers.
I can't imagine that this country would want to lose and minimize our opportunity to create
wealth for ourselves and for the communities around us.
And with the demographic shifts and recognizing that I call black and brown people the new
majority, we're the fastest growing segment of the population.
Maybe take it down to businesses.
Black women are the fastest growing entrepreneurs in this country.
Not the same rate, but they're there.
So from a quantitative perspective, I think everybody in this country should begin to care about black
communities because we are indeed taking over in a good way.
States have already flipped where black and brown people are the majority.
And so as you think about the long term economic viability and competition, it's
important that we invest.