Where they are, what they provide, and how they help
- Today there are 145 minority-owned financial institutions in the United States. Taken together, they have approximately $329 billion in assets in total.3
- Of these, 20 are Black-owned banks.
- Black-owned banks provide customers not only access to the financial resources they need but also the chance to invest in the financial health and well-being of their community.
- Black-owned banks also play a critical role in fighting modern-day systemic racism in the financial sector.
- Critics of Black-owned for-profit banks have posited that true financial justice requires institutions, such as not-for-profit credit unions, that are separate from a financial system rooted in racism and exploitation.
Ever since the founding of the Bank of North America in 1781, banking has played a critical role in facilitating the American Dream.1 These institutions provide indispensable monetary services, ranging from accepting deposits to offering loans. Credit is king in the United States, and without high-quality financial institutions, countless Americans would struggle to acquire vehicles, housing, and other essential items.
However, like pretty much all of the nation’s older institutions, banks have also played a significant part in America’s racist past. Racial discrimination in the banking industry and financial system has targeted African Americans, and challenges to ending discrimination persist today. Black-owned banks arose as an alternative to larger institutions, to provide greater access to banking services as well as an opportunity to support local communities.
According to the Federal Deposit Insurance Corp. (FDIC), a minority depository institution (MDI) is “…a federal insured depository institution for which (1) 51 percent or more of the voting stock is owned by minority individuals; or (2) a majority of the board of directors is minority and the community that the institution serves is predominantly minority. Ownership must be by U.S. citizens or permanent legal U.S. residents to be counted in determining minority ownership.”2 Of the 20 Black-owned banks featured in this article, four fall into the latter category.3
For the purposes of this article, Black-owned and Black-managed credit unions that serve the Black community have been included to provide the most complete picture of America’s Black financial institutions. The article uses the term “Black-owned” in this broad sense, recognizing that stockholders own for-profit banks and members own credit unions.
Background and History of Black-Owned Banks
Black-owned banks didn’t exist until more than a century after the Bank of North America first opened its doors. Prior to the chartering of the first Black-owned bank in 1888, the U.S. Congress and then-President Abraham Lincoln established Freedman’s Savings Bank in 1865. As part of the Freedman’s Bureau, this institution was designed to help newly freed African Americans navigate the U.S. financial system.
Despite Congress voting to close the Freedman’s Bureau in 1872, the bank continued to operate. In 1874, Frederick Douglass took over as the bank’s Washington, D.C., branch director, and he found the place to be rife with corruption and risky investments. Despite Douglass investing $10,000 of his own money in the bank in an attempt to save it, Freedman’s Savings went bankrupt later that same year.Although Freedman’s Savings Bank doesn’t fit the modern criteria of a Black-owned bank, it represents a critical first step.
The first officially chartered Black-owned bank, True Reformers Bank, was founded on March 2, 1888, by the Rev. William Washington Browne. A former slave and Union Army officer, Browne was founder of the Grand Fountain United Order of True Reformers fraternal organization. True Reformers Bank came about when Browne and his organization faced financial hardships while trying to establish a new branch in Virginia. Unable to manage the order’s money without arousing suspicion from paranoid and prejudiced locals, Browne founded True Reformers Bank so that the organization’s finances would be free of scrutiny from White people.
The bank opened its doors in 1889 and went from a small operation in Browne’s house to an institution strong enough to survive the financial panic of 1893.6 Although True Reformers Bank continued to operate after Browne’s death in 1897, problems were beginning to develop by 1900.7 Under its new president, the Rev. William Lee Taylor, branches were poorly regulated, unsecured loans were made, and an embezzlement scandal cost most accountholders their savings. By 1910, the State Corporation Commission had ordered the bank to be closed.
As the story of True Reformers Bank was playing out, other Black-owned banks were also getting their start in the U.S. Capital (spelled Capitol by some accounts) Savings Bank of Washington, D.C., opened its doors in Oct. 1888, roughly six months before True Reformers Bank.9 Capital Savings also managed to survive the financial panic of 1893, though it later closed in 1902.
From 1888 to 1934, more than 134 Black-owned financial institutions were founded, predominantly located in Southern states. Their numbers dwindled during the Great Depression, leaving nine by 1930. It wasn’t until the civil rights movement that a resurgence took place, raising their numbers to 50 by 1976.11
By 1988, the savings and loan crisis had wiped out 35 Black-owned banks.11 The start of the most recent decline came in 2001, during the early 2000s recession, which rapidly accelerated once the Great Recession began.12 There are 44 Black-owned financial institutions, including credit unions, left today.
“You can’t separate Black history from American history,” says Tyrone Ross, chief executive officer (CEO) of Onramp Invest, a crypto asset integration platform solution for financial advisors. “We’ve always been well adept and versed in financial education and the ability to be entrepreneurs. It’s just been stripped from us. So it’s OK to write these articles—or have panels or whatever—but let’s start with the history first so people go, ‘Oh, crap. It really was stripped from them, and they’re just trying to get it back.’”
As recently as 2019, the net worth of a White family was more than seven times higher on average than that of a Black family.14 This is a result of inequality, discrimination, racism, and differences in power and opportunity compounding throughout America’s history.15 It also is why the diminishing number of Black-owned banks is especially of concern, given the role that these institutions play in fighting modern-day systemic racism in the financial sector.
Consider redlining. This unethical and now-illegal practice is used to block off access to important services for residents of certain neighborhoods based on their race or ethnicity. The Civil Rights Act of 1964, which prohibits discrimination on the basis of race, color, religion, sex, and national origin, was a start. And yet, although the Fair Housing Act of 1968 and the Community Reinvestment Act (CRA) of 1977 were both intended to eliminate redlining, this kind of discrimination is still seen today.
For instance, 68.1% of loans made from 2012 to 2018 for housing purchases in Chicago went to predominantly White areas; 8.1% went to predominantly Black areas. Banks also lent more money to predominantly White neighborhoods than to every predominantly Black neighborhood combined. This disparity is even starker when looking at individual lenders, with JPMorgan Chase lending 41 times more money in White neighborhoods than Black ones.
Chicago is far from the only place where redlining occurs. From 2015 to 2020, the denial rate for Black home loan applications in Boston was 15.3%, more than three times that of their White counterparts.17 And in 2018, people of color in 61 cities were more likely to be denied home loans than White residents.18 If homeowners aren’t moving into—and investing in—a neighborhood, then it means capital isn’t flowing into the community, which leads to poverty and crime having an inescapable presence in the area.
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