BANK ON BLACK

Black-Owned Financial Institutions Vie for Your Savings

By Kristen Jones

Black-owned banks have played an important role in the African American community for many years, providing the economic assistance that many black people have desperately needed. Without these institutions, many black citizens would not have had a safe place to save their money; would not have been able to purchase houses, cars and other important items; and would not have been able to build businesses.

Although the first Bank of the United States was established in Philadelphia in 1791, it didn’t serve the needs of blacks. To remedy this, President Abraham Lincoln established the Freedman’s Savings and Trust Company in 1865 to help serve freed slaves after the Civil War who needed banking services. Unfortunately, the company failed in 1874 due to faulty investment practices and corruption, which turned out to be a tragedy for those African Americans who had opened savings accounts there. Although some depositors ultimately got about 62 percent of their money back, more than half lost all of their savings.

Early Black-Owned Banks

On March 2, 1888, the first African American bank was finally founded. It was named True Reformers Bank and opened on April 3, 1889. William Washington Browne established the bank to serve the interests of African Americans and so that their finances would not be monitored by whites. Founded in Richmond, Virginia, it first operated out of Browne’s home and remained there for two years before moving. Even though it was the first blackowned bank chartered in the nation, the first one to open was the Capitol Savings Bank of Washington, D.C., which opened on Oct. 17, 1888.

By 1906, there were more than 30 black banks, and the number continued to grow for years. These first black banks weren’t created merely to make a profit but rather to serve the community’s needs. They often provided lower-interest mortgage loans and programs to help those in need or who were unemployed—efforts that weren’t common in those days.

Over 130 black-owned banks opened from the end of Reconstruction to the beginning of the Great Depression and provided loans to potential homebuyers and black businesses. By this time, African Americans had gained some faith in the banking industry, and the idea of having more black-owned businesses was becoming a reality. Unfortunately, only nine black-owned banks were still operating by the 1930s, partly as a result of the Great Depression, which hit the entire nation’s banking industry very hard.

After the Civil Rights Movement and beyond, blackowned banks have varied throughout the years. These banks—institutions in which black people own 51 percent or more of the stock—try to level the playing field for black consumers who have been underserved by other financial institutions and continue to lag behind other segments of the population. They have created financial havens for African Americans when discrimination in the industry was common and continue to provide needed services to those in the community. They are often located in areas overlooked by the rest of society, such as neighborhoods that are subjected to redlining practices and communities that are not able to acquire fair banking services from other banks. To meet the needs of their community, they may provide resources that address the special needs of African Americans and their families, such as two-day early paydays, short-term loans, smalldollar loans, and real estate lending programs. They also provide institutional leadership, capital, employment and training in low-income areas.

Systemic racism has discouraged many African Americans when they’ve sought funding for things such as businesses or family emergencies. At times, the lack of access to financial institutions is simply influenced by an outdated belief that African Americans can’t be successful with money. This belief has increased the need for more of these banking facilities, both to dispel such myths and to provide the opportunity for future generations of black people to gain the knowledge they need to make positive financial decisions.

Black Banks Today

Unfortunately, the number of black-owned banks in the U.S. has dwindled over the past 20 years or so, decreasing by more than 50 percent, partly because the economic condition of their customers, regulations, operating costs, and competition from mainstream banks make it difficult to stay in business. The 2008 financial crisis was particularly damaging to the income level and employment rate of black Americans and contributed to the decrease in the number of black-owned banks, which have far fewer assets at their disposal than major banks.

The remaining black-owned banks, totaling less than 1 percent of all FDIC-insured banks, include online and brick-andmortar institutions, which are working diligently to minimize the ever-present disparity gap by giving minority communities the financial services, funding and education they need to acquire assets and build wealth. Without these banks, low-to-moderateincome communities would be forced to rely on payday lenders, pawn shops, and loan sharks for financing, which would keep them trapped in an unhealthy cycle of debt.

A giant in black banking is OneUnited Bank, which was founded in 1968 as Unity Bank & Trust Company and today lays claim to being the largest blackowned bank in the nation. In addition to having physical locations, it is also the first black Internet bank. Still, the bank is tiny compared to mainstream banks. JPMorgan Chase, for example, holds more than $3 trillion in assets, according to BankRate.com, while OneUnited manages less than a billion dollars in assets.

The Movement to Bank Black

Following the 2016 protests against police brutality, Kevin Cohee, chairman and CEO of OneUnited Bank, started the Bank Black movement, which led black people to transfer millions of dollars to black-owned banks as protest. And while the focus of black-owned banks is on helping black individuals and black communities, that doesn’t mean that nonblacks can’t play a role. In fact, those from other races and ethnicities can become allies by using black banks and helping them grow so that they can better serve underserved black communities.

In 2021, for example, to help close the racial wealth gap, the streaming service Netflix deposited an estimated $100 million in black-owned financial institutions and community development organizations because they are better than mainstream banks at lending to minorities. The company also said that it would be depositing more in the future.

Whether we are black, white or another race or ethnicity, we too might want to consider banking black. It’s a great opportunity to make an impact and help establish a more equitable economy.

For a list of black-owned banks and credit unions, visit https://investopedia.com/black -owned-banks-by-state5024944 and scroll down toward the bottom of the page.

BERNARD GARRETT