Community banks all over the country are disappearing fast, part of a well-known trend that stretches back several decades. The pattern at black-owned banks is even starker, though far less frequently discussed.
Today there are 23 African-American-owned banks – a 58% decline since 1994. That is according to new research from Creative Investment Research, a Washington-based firm that specializes in community development and impact investing. For the sake of comparison, the total number of U.S. commercial banks declined by 49% between 1994 and 2015.
Perhaps even more striking is the small size of those black-owned banks that remain in business. Nine of the remaining African-American-owned banks have less than $100 million in assets, and none of them have more than $700 million in assets.
These realities are distressing to William Michael Cunningham, chief executive of Creative Investment Research and a longtime advocate for black-owned banks. Cunningham and his colleague Crystal Liu project that only four or five African-American-owned institutions will remain open in 2028. In order to be included on their list of black-owned banks, at least 51% of the firm's common stock must be owned by African-Americans.
Cunningham says that black-owned banks are being hurt by some of the same factors that are leading to consolidation industrywide, including a merger-friendly regulatory environment and technological innovations that reward scale.
But he lays some of the blame at the feet of federal regulators, criticizing them for failing to take greater advantage of new tools under the Dodd-Frank Act that were designed to increase diversity in the financial sector. (When asked about those statutory changes during congressional testimony last year, Federal Reserve Board Chair Janet Yellen said, "We are very committed to doing what we can to facilitate inclusion of minorities and women.")
Cunningham, who was trained as an economist, has experienced his own frustrations with banking regulators, having tried and failed to launch a black-owned bank holding company during the financial crisis.
In the interview, Cunningham spoke about how black people were victimized during the subprime mortgage era, how majority-owned banks could support black-owned institutions, and the growing opportunities for banks to make money in black communities.
The interview has been edited for length and clarity.
What conclusion do you draw from the financial crisis and the impact it had on black households?
WILLIAM MICHAEL CUNNINGHAM: I think the conclusion I draw is that you can't rely on the financial system itself to protect your interests. Now that's a lesson that everybody learned, but it's especially relevant for African-Americans. Nobody's going to protect you but you. And that's justification, rationalization enough for the creation, maintenance, expansion of black-owned banks.
What have been the key factors driving consolidation?
In terms of factors in the decline of black banks, regulatory hostility masquerading as regulatory concern. Part of what happens is you get all these people at the regulatory agencies who say, "Oh yes, we're familiar with your black bank. And we're here to help you." Except when you really need the help. Then there's nothing they can do for you. Because basically, when you really need the help, what you're talking about is money. And they don't have anything for you.
I think you had hopes after Dodd-Frank was passed that these Offices of Minority and Women Inclusion inside the various regulatory agencies would have a positive impact, and you've been disappointed. Tell me about what you feel has gone wrong with those offices.
They were so frightened about getting called to the carpet by a right-wing Congress that they decided to take a supercautious approach. They decided to slow-walk, in bureaucratic terms. Not do anything interesting. Do the very bare minimum that the law required, or asked for, as opposed to being expansive. As opposed to looking at the decline in the number of black-owned banks and using that as an excuse to get active.
Do you think there's an opportunity – if implemented in a more aggressive way – for those offices to help spur banking industry support for black-owned institutions?
There's a number of ways. No. 1 is of course money, funding. Some of the majority banks have invested in black-owned banks, and they've lost their money. But still, that is one potential core support of the black-owned banking sector.
Secondly, advisory and technical support. A lot of the black-owned banks don't have apps to engage with their customers. Well, why doesn't Bank of America simply give their app – they've got a pretty good app – why don't they simply give it to a bunch of black-owned banks? They could. But the regulators aren't pressing them on it. There's all kinds of security and liability issues. I get that. But at least look at the issue, talk about it. And they're not even doing that.
Despite the consolidation trend, you've argued that the potential market for black banks is growing. Tell me about what your research has found.
We found that [the] black percentage of the population has been growing, that black purchasing power has also been growing. Black education, high school graduation rates, as well as college graduation rates – getting better. So the underlying demographics, they're actually good.
It's a double-edged sword. Because the numbers are getting better, that makes the sector more attractive to anybody – majority banks, too. So part of what you're seeing is people, I don't want to say coveting the market, but at least not being afraid of it.
We had a story back in July about something called the Black Money Matters Project, urging African-Americans to open accounts at black-owned and black-operated banks and credit unions. Do you think there's much promise in those types of efforts, or is it going to take action by the government to really make a difference?
I'm pleased to see them. But remember, we've seen them before. We saw them after the L.A. riots. My hope is that with the right set of circumstances, the right set of partners, some government and regulatory assistance, using social media and technology to enhance the impact, that you could see this movement make a difference. So I like it. I'm optimistic – cautiously optimistic, I should say, because I have seen this before.