The number of black-owned banks in the U.S. continues to decline, at a time when many African-American communities are still coping with the effects of the mortgage crisis and are in need of basic financial services.
Black-run banks took a bigger hit from the housing crisis than the banking industry at large, and they’ve struggled financially in recent years as the communities they serve have suffered higher-than-average job losses and home foreclosure rates.
Although 13.2% of the U.S. population is African-American, less than half of 1% of U.S. banks are black-owned, according to Federal Reserve data. There are just 24 banks with majority African-American ownership, a sharp decline from 41 in 2007, prior to the recession. There were 44 black-owned banks in 1986, the year Congress passed a law designating February as National Black History Month.
At the same time, African-Americans as a group are underserved by financial services. More than 53% of blacks are either unbanked or underbanked (meaning they supplement their bank account with alternatives such as check cashers). That’s nearly double the percentage of the population as a whole, according to the Federal Deposit Insurance Corporation.
Why black-owned banks matter
Historically, black-run banks served African-American communities during an era when discrimination was common in financial services. Today, these banks function as engines for economic revitalization in the often-distressed communities they serve, even as they face an increasingly competitive industry that’s tough for all smaller banks.
Black-owned banks “have a human and historical connection to Reconstruction, when newly freed slaves had nowhere to go but these banks,” says Michael A. Grant, president of the National Bankers Association, a Washington, D.C.-based organization of minority- and women-owned banks.
“I believe the need for black-owned and black-run banks is greater now than it was before the recession. We’ve lost as much as 40% or more of the wealth in the black community since the mortgage crisis. A lot of folks are in dire straits,” Grant says. “Some customers get turned down by mainstream institutions for business loans and mortgages, then come to black banks as a last resort — and get the loan.”
BLACK-OWNED BANKS PROVIDE NEEDED ACCESS TO SERVICES
The disproportionately high number of African-Americans who are disconnected from mainstream financial services is a target market for black-owned banks. Many of these consumers have no checking and savings accounts, and they often rely heavily on check cashers, pawn shops, payday lenders or other high-cost alternative financial providers.
Many black-owned banks are located in neighborhoods that other banks don’t serve, and the minority institutions provide access to safe and affordable bank accounts, mortgages and business loans. One of the largest, OneUnited Bank, offers these and other greatly needed bank services, including second-chance checking for customers who have been denied an account in the past, secured credit cards for those working on rebuilding damaged credit, and education for first-time homebuyers. “To open a deposit account is only $10, so it’s very affordable,” says Teri Williams, the bank’s president.
OneUnited is also an Internet bank, offering better-than-average interest rates on savings and checking accounts. Its well-rated mobile apps are important in competing for African-American customers, who are more likely to use mobile banking, according to the Federal Reserve.
BLACK-OWNED BANKS SUPPORT AND STABILIZE COMMUNITIES
As community banks, black-owned banks have strong relationships with the neighborhoods where their customers live. Part of OneUnited’s mission is to make customers feel welcome, rather than intimidated.
“The cities we serve are black and brown, and on the income side, many are people who are struggling. We have people in their 50s and 60s who tell us they’ve never set foot in a bank. They didn’t feel welcome. They didn’t feel banking was for them,” Williams says.
“They experienced when banks were redlining and not welcoming to them, because it happened during their lifetime,” she says, referring to the practice by financial institutions of mapping out neighborhoods in which they would not offer services. Although it was outlawed by the Community Reinvestment Act of 1977, societal scars from that period still exist. “[Traditional] banks have a way of creating these huge physical locations that can be intimidating to someone who doesn’t have a lot of resources — is this place going to welcome my $100 paycheck or $50 savings account?” Williams says.
By providing financial services, credit and a warm welcome, Grant says black-owned banks help stabilize the communities they serve. “When people get a piece of the rock, guess what happens — crime rates in that community come down,” he says.
If you want to find an black-owned bank, here’s the full list:
African-American-owned banks
| Bank | Location |
|---|---|
| Alamerica Bank | Birmingham, Alabama |
| Broadway Federal Bank | Los Angeles, California |
| Commonwealth National Bank | Mobile, Alabama |
| Industrial Bank | Washington, D.C. |
| Axiom Bank | Maitland, Florida |
| Carver State Bank | Savannah, Georgia |
| Citizens Trust Bank | Atlanta, Georgia |
| Illinois Service Federal | Chicago, Illinois |
| Seaway Bank | Chicago, Illinois |
| Metro Bank | Louisville, Kentucky |
| Liberty Bank | New Orleans, Louisiana |
| Harbor Bank of Maryland | Baltimore, Maryland |
| OneUnited Bank | Boston, Massachusetts |
| First Independence Bank | Detroit, Michigan |
| City National Bank of New Jersey | Newark, New Jersey |
| Mechanics & Farmers Bank | Durham, North Carolina |
| United Bank of Philadelphia | Philadelphia, Pennsylvania |
| South Carolina Community Bank | Columbia, South Carolina |
| Citizens Savings Bank | Nashville, Tennessee |
| Tri-State Bank of Memphis | Memphis, Tennessee |
| Unity National Bank of Houston | Houston, Texas |
| First State Bank | Danville, Virginia |
| Columbia Savings & Loan | Milwaukee, Wisconsin |
| North Milwaukee State Bank | Milwaukee, Wisconsin |
This post has been updated. It was originally published Feb. 18, 2014.
Jeanne Lee is a staff writer at NerdWallet, a personal finance website. Email: jlee@nerdwallet.com. Twitter: @jlee_jeanne.
Image via iStock.
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