By Amber Burton,Justin Scheck andJohn West
A half-century ago, the federal government set out to attack the
racial wealth gap by supporting Black-owned banks. Policy makers
hoped the banks would lend to Black communities sidelined by the
mainstream financial system.
But five decades of federal financial and regulatory support
have failed to boost America's Black-owned banks. The majority have
disappeared under the burden of soured loans, bigger competitors
created by mergers and financial downturns that hit small lenders
hard. Fifteen years ago America had 36 Black-owned banks,
government data show. Now there are 18.
And Black people still face obstacles to getting loans. Would-be
borrowers in Black neighborhoods over the past decade have been
less likely to have their home loans approved than borrowers in
other neighborhoods, according to a Wall Street Journal analysis of
federal data in the nine largest cities by raw Black
Those who do get home loans are likely to pay more than other
borrowers on comparable loans. A FDIC survey found last year that
13.8% of Black households in America don't have bank accounts at
all, compared with 5.4% of the overall population. The survey also
found that 72.5% of all U.S. households used bank credit last year,
but just 52.5% of Black households.
Now a new generation of entrepreneurs, companies and regulators
is trying a different strategy. They are promising to strengthen
Black-owned banks by building up their capital with private
investments and giving them new ways to earn money with hundreds of
millions in big corporate deposits. Their hope is that this
approach will ultimately improve Black communities' access to
Federal authorities define Black-owned banks as lending
institutions regulated by the U.S. government that have more than
51% of the voting stock in the hands of Black owners. Such lenders
flourished during the early part of the 20th century as a key
source of capital for Black borrowers. The Nixon administration
offered support in 1969, leading to direct government deposits from
the U.S. Treasury. The approach was part of what Mr. Nixon called
in an executive order an attempt to "obtain social and economic
justice" for minorities. In 1989 Congress ordered regulators to
provide additional forms of technical support to Black-owned banks
and other minority-run financial institutions.
Black-owned banks have succeeded in making capital more widely
available in the sense that they approve a higher percentage of
Black applicants' loans than other banks. But their impact on the
communities they serve is increasingly limited by their small size
and often precarious financial standing.
The reasons are both specific and systemic. Black-owned banks
often believe they can do a better job assessing the risk of Black
borrowers, but they tend to make riskier loans due to their
deliberate lending to consumers shut out by mainstream banks. They
also share many of the same problems afflicting small community
banks: a limited number of branches, little money to invest in the
type of mobile-banking technology that might attract new customers
and an industry consolidation that increasingly puts more market
share in the hands of megabanks like JPMorgan Chase & Co. and
Bank of America Corp. The total number of banks insured or
supervised by the Federal Deposit Insurance Corporation has
declined by 45% since 2001, compared with a drop of 56% for the
number of Black-owned banks over the same period.
As consolidation made big banks even bigger, it has become
increasingly hard for small banks -- Black and otherwise -- to
compete. That consolidation hasn't been a fix to the problems that
Black banks were supposed to solve. A FDIC survey last year found
Black households were about five and a half times more likely to be
unbanked than white households, a slight improvement from a decade
The limitations of Black-owned banks intensified in the
aftermath of the 2008-09 financial crisis, which was triggered by a
housing bust. In Chicago, Milwaukee and New Orleans, four
Black-owned banks that eventually failed were more likely to
approve Black borrowers' home-loan applications than banks were
overall during a period between 2007 and 2014, according to a Wall
Street Journal analysis of federal home-lending data. But these
banks never got big enough to significantly improve access to
mortgages in their neighborhoods. None received more than 1.3% of
all loan applications from Black borrowers in the Census tracts in
which they were active during a period starting in 2007 and ending
with their closures.
One of the banks that went under was Covenant Bank, which served
a largely poor and Black community on Chicago's West Side. "We were
trying to eradicate poverty," said its former chairman, the Rev.
Bill Winston. "That was our endgame."
When regulators ordered the Chicago bank to raise capital to
cover loans that went sour after the 2008-09 financial crisis, Mr.
Winston said he couldn't attract outside support and burned through
more than $2 million of his own money. The bank failed in 2013.
"The little guys don't have a shot," Mr. Winston said.
A New Push
Some big companies are trying to change the lopsided odds for
Black-owned banks by becoming customers of the banks themselves.
Their interest intensified after the May killing of George Floyd
while in police custody. Both Netflix Inc. and PayPal Holdings Inc.
said they would provide deposits to existing Black-owned banks,
giving them a bigger financial cushion and more money to lend.
Due in part to this new push, assets at Black-owned banks rose
about 10% in the second quarter of 2020 from the first. It was the
biggest quarter-to-quarter change in two decades.
Corporate deposits are a stable, low-cost source of funding for
banks. The more of these prized customers banks have, the greater
capacity they have to lend. Netflix has committed $100 million to
the effort, including $25 million to a community development
nonprofit that will help deploy the funds via loans and deposits in
PayPal recently deposited $50 million in Black-owned Optus Bank
in Columbia, S.C. as part of a $350 million push to support Black
businesses, and Bank of America also bought a stake in the same
lender. Optus Bank almost doubled its assets in the past year
alone, to $155 million as of the end of June.
Assets aren't the only measure on the rise at Optus. Total net
income was $2.8 million in the third quarter, up from $366,000 in
the same year-ago period.
"Our goal is to have an impact on the financial health, access
and generational wealth creation for underrepresented minorities,"
a PayPal spokeswoman said.
Dominik Mjartan, Optus's president, said the PayPal deposit
allowed it to fund $40.5 million in loans through the Paycheck
Protection Program, the federal government's coronavirus lifeline
for small businesses. Some of the businesses -- including an
auto-repair shop that had to shut down earlier in the pandemic --
would have closed for good without the funding, he said.
"You cannot solve 400 years of disparity with a deposit," he
said. "But it can create movement."
Mr. Mjartan said Optus Bank is focused on serving people who
don't fit the stereotypical mold of a borrower at mainstream banks.
He recognizes that some of his customers' property value might be
slower to recover after a recession or their credit scores might be
lower due to systematic inequality, but said his bankers take the
time to look beyond what's on paper.
"On paper would a traditional bank say they are more risky?
Probably," he said. "But would we say that? No. For us their
stories are more complicated. Their stories require our lenders to
spend more time and really understand the unique circumstances of
each person and then offer a solution that maximizes the chances of
There are other initiatives under way to support more of these
Black-owned institutions. One is from Ashley Bell, an Atlanta
lawyer and former regional administrator for the Small Business
Administration during the Trump administration. He is putting
together a nonprofit that intends to raise $250 million to buy
stocks in Black-owned banks, via an entity called the Black Bank
Fund. The initiative is being led by Dentons, the law firm where
Mr. Bell works, and consulting firm KPMG, and aims to buy nonvoting
shares in Black banks.
The idea, Mr. Bell said, is to leave decision making power in
the hands of the banks' Black owners while providing extra capital
so the banks can significantly increase the amount of money they
can loan. Mr. Bell said he is hoping the effort will help
Black-owned banks increase their income as well as their services.
Most such banks, for example, currently don't have
wealth-management arms. "How can you create intergenerational
wealth if you don't even offer that service in your community?" he
A new financial-services company in Atlanta is trying to bring
new customers to Black banks partly through the prominence of its
co-founders: former Atlanta Mayor Andrew Young and hip-hop artist
and activist Michael Render, known as Killer Mike. Their company,
Greenwood, will issue debit cards and offer online deposit services
via accounts at other banks.
The recent history of Black banks can leave a person with a "sad
and hopeless feeling," said Mr. Render, who started a #BankBlack
campaign in 2016. Many Black people, he said, have felt
marginalized by the mainstream financial system. "We've never been
allowed to fully participate," he said. He argues there is
widespread demand in the Black community for better financial
services. "Black people have understood capitalism, at their core,
since they were the capital," he said.
Rather than funnel capital into existing banks, Mr. Render said
he wanted to start a business that would close some of the gaps
between Black banks and their bigger competitors, starting with
technology. Greenwood is planning to offer mobile-banking apps that
will let users access accounts at small Black-owned banks as easily
as they could access accounts at big mainstream lenders, taking
away an obstacle to opening accounts at small banks.
Mr. Render said he is modeling the idea on the Greenwood
neighborhood of Tulsa, Okla., a thriving Black business district
that was razed by white mobs in 1921. Mr. Render said he was taken
with the idea that Greenwood brought wealth to Tulsa's Black
community in part by connecting it to the larger economy. He and
Greenwood President Aparicio Giddins said Greenwood will offer
accounts with Black-owned banks and mainstream banks, in part to
link Black customers with the mainstream, and in part, Mr. Render
said, because he is concerned that the 18 remaining Black-owned
banks have limited capacity to take on large numbers of new
A Black Banking Boom
The idea of lending specifically to Black Americans began with
Reverend William Washington Browne, an ex-slave who started a
fraternal organization to support Black enterprises and founded
America's first Black-owned bank in Richmond, Va in 1888. By 1900,
the Savings Bank of the Grand Fountain United Order of True
Reformers had branches in 24 states. Regulators closed the bank 10
Black-owned banks boomed from 1910 to 1930, said Mehrsa
Baradaran, a law professor at the University of California, Irvine,
who researches Black banks. Citizens Trust Bank, located in
Atlanta, and Industrial Bank, based in Washington, D.C., were two
that resulted from this early burst.
In that segregated era, they were often the only banks that
would lend to people in Black neighborhoods. For decades,
mainstream lenders shut out minority communities through
"redlining" -- the now illegal practice of refusing mortgages for
people in low-income and Black neighborhoods.
An entrepreneurial spirit born out of exclusion reverberated
into the 1960s, Ms. Baradaran said. The Civil Rights era produced
another boom of interest in Black banks, from activists and the
government. Though Congress in 1968 had just outlawed "redlining,"
officials remained concerned that discrimination would continue. If
mainstream banks wouldn't lend to minorities, the thinking went,
then perhaps minority-owned lenders would help bring financial
In 1969, the Treasury Department began depositing money in
Black-owned banks to boost their capital so they could lend to
communities that mainstream banks continued to shun. The Minority
Bank Depository Program still encourages government agencies to
deposit funds in minority and women-owned banks. As of 2020 there
were 71 minority banks enrolled in the program and the total amount
of deposits collected by the banks in fiscal year 2020 was $32.6
In 1989, Congress passed more legislation that tasked the FDIC
with providing technical support and advice to minority-owned
depository institutions so they could continue to support
The Nixon-era policy of supporting Black-owned banks as a way of
addressing lending inequities had a flaw, said Anne Price, the
president of advocacy group Insight Center for Community Economic
Development. Several dozen little banks couldn't possibly cancel
out entrenched discrimination by the country's biggest lenders.
Relying on Black-owned banks to solve the problem inadvertently
absolved everyone else, she said.
"In a way, there were two markets set up: one for Blacks and
another for whites," she said.
Black-owned banks now account for just 0.2% of all banks
regulated by the FDIC, according to June 30 data. The last
Black-owned bank to go under was City National Bank of New Jersey,
which regulators seized in November 2019. Total assets at America's
Black-owned banks were $4.5 billion as of June 30, according to the
FDIC, down from $4.7 billion in 2005.
The largest Black-owned bank -- a planned union of Los Angeles's
Broadway Federal Bank and Washington, D.C.'s City First Bank --
will have $1 billion in assets if that merger closes in 2021.
The FDIC's inspector general said in a 2019 report the FDIC
achieved its goals by preserving and promoting minority banks and
ensuring they remained minority led or owned. An FDIC spokeswoman
in an interview said assets controlled by Black-owned banks haven't
dipped since 2001 despite the fact there were twice as many of
these banks then as in 2019.
At the same time, according to the inspector general's report,
the technical support provided by the FDIC didn't seem to help
minority banks stay open. The inspector general also cited a study
from the Federal Reserve Bank of Chicago showing that Black-owned
banks faced bigger challenges, like maintaining enough capital, to
stay in business from 2011 to 2017 than other minority-owned
The FDIC is now seeking new ways to help the remaining
Black-owned banks stay healthy, a spokesman said. It is starting a
fund run by an independent manager will assist companies that want
to invest in minority institutions but may not know how. And
minority institutions will be able to request support in the form
of equity, help with troubled assets, or other investments. "This
is by no means a panacea, but it's an important leap forward," he
'Just Let It Rot'
The problems of Black-owned institutions accelerated in the
aftermath of the 2008-09 crisis, when their numbers contracted by
42% over 12 years -- slightly more than the 38% drop for all banks
supervised by the FDIC. In Milwaukee, the Black-owned Legacy Bank
found itself burdened with troubled loans that were mostly caused
by the economic downturn. Margaret Henningsen, one of the bank's
founders, was trying to raise additional capital in 2011 when
regulators decided the bank was no longer viable. It was acquired
by another Black-owned lender, Seaway Bank & Trust Company.
Seaway itself failed in 2017.
"It broke my heart," said Ms. Henningsen, "After watching Seaway
take on other troubled banks, it became a troubled bank."
Eighty-one miles south in Chicago, the crisis made life
considerably more difficult for another Black-owned bank called
Covenant. Its chairman, Mr. Winston, wanted to eradicate poverty
and borrowed from a Black-owned bank in 1997 to buy an abandoned
mall to house his congregation when mainstream banks wouldn't lend
to him. A decade later, he and his parishioners pooled their funds
to buy a bank of their own.
It began with optimism. With funding from his personal accounts
and his parishioners, Mr. Winston's group acquired the tiny
Community Bank of Lawndale, which had a single branch in a
predominantly Black neighborhood. He came up with a plan to put a
new branch in the mall his church bought -- making it a convenient
place for congregants to do business.
Over five years, Covenant extended more than $19 million in
loans to a largely Black clientele. Bank employees also went to
local churches to teach congregants the basics of finance.
Then the bank got caught in a downward spiral during the 2008-09
crisis as its customers struggled. Covenant would grant borrowers
who couldn't pay extensions on their loans. These loans had to be
downgraded on the bank's books, forcing the bank to raise more
"The minority community is usually the first laid off," Mr.
Winston said. "They can't pay on the loans they have."
Mr. Winston tried to sell additional shares in Covenant, but
potential investors balked. He said he approached bigger banks and
companies in the area to see if they would deposit money with
Covenant, but didn't get any traction. So he put more of his own
money in -- more than $2 million in the end -- to keep Covenant
Regulators shut down Covenant in 2013 and sold its assets to
another Black-owned lender. Mr. Winston said he is still angry that
some local media coverage blamed him for pushing congregants into a
bad investment. He said he felt he was being criticized for trying
to fix a system that he believes is stacked against Black borrowers
and Black banks alike.
"I got wiped out," he said. "I just got weary. I just couldn't
hold it anymore. One of the board members said to me: 'Pastor,
don't put in any more money. Just let it rot.'"
Searching for the Middle Class
In many ways, the struggles of Black-owned banks and small,
community lenders are one and the same. Thousands of small banks
have closed their doors over the last three decades, while the
biggest banks have continued to grow.
America's biggest banks spend tens of billions of dollars a year
on technology. They offer a full range of financial services --
credit cards, retirement planning, deal-making advice -- that
wealthy consumers and big businesses want and need. When those
customers leave, tiny banks are left with lots of tiny
"What really would help us is if potential customers would look
at our residential and commercial loan products," said B. Doyle
Mitchell Jr., the president and CEO of Black-owned Industrial Bank
in Washington, D.C.
Industrial has been in Mr. Mitchell's family for three
generations, and was strong enough last year to acquire the closed
City National Bank of New Jersey. In June, Industrial got a $5
million grant from Morgan Stanley.
But to thrive, Mr. Mitchell said, Industrial and America's
remaining Black-owned banks need something else: more middle-class
borrowers. Small accounts carry the same expense as larger
accounts, he said.
Small banks make money on the spread between what they pay
depositors and what they charge borrowers. For banks to make a
profit, the good loans must far outnumber the bad. Black-owned
banks that cater to riskier borrowers often find themselves on the
wrong side of the equation.
Mr. Mitchell also knows that the bank will need to capture the
attention of younger Black borrowers who could essentially take
their credit anywhere.
"We have focused on appealing to millennials and young
entrepreneurs over the last five years with social media campaigns
and new products," said Mr. Mitchell. The bank is about to launch a
new automated digital platform speeding up the process of approval
of home loans and allows clients to apply online. "We're making the
investments," he said.
The bank has found help from the government and one of the
nation's largest banks. In 2018, Citigroup Inc. became a mentor to
Industrial Bank through the U.S. Department of the Treasury's
Financial Agent Mentor-Protégé Program. Industrial was the first to
do work with the Department of Treasury through the program. It is
a subcontractor to Citigroup, and Citigroup is serving as a mentor
helping the bank learn how to manage risk and diversify its
portfolio with more predictable and long term opportunities.
"It's a long learning curve," said Mr. Mitchell. "But it's
slowly beginning to bear fruit."
For Citigroup, the partnership is part of its larger initiative
to mentor and lend support to minority depository institutions. It
now has six banks that it mentors.
"Anyone can give money, what we're doing are things that will
make a sustainable long term impact," said Harold Butler, who leads
the program at Citigroup.
Write to Justin Scheck at email@example.com
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