Today despite a growing black population of more than 45 million, there are only 23 black-owned banks in the United States, including just one in California — the $408 million-asset Broadway Federal Bank in Los Angeles. A closer look reveals why the viability of black-owned banks in this country is threatened. Not one black-owned bank has even in $1 billion in assets. Wells Fargo, for example, has assets that are 2,500 times greater than any black-owned bank in the country.
Partly as a result of the small and ineffective size of black-owned banks, there is no national or statewide banking strategy to assist the black community in its efforts to reduce the impact of income and wealth inequality. Many predict that income inequality will only increase as the number of black-owned banks is projected to decline. According to William Michael Cunningham and Crystal Liu of Creative Investment Research, the number could decline from 23 to just four or five by 2028.
This is a complex problem in a nation of free enterprise. As formal barriers to segregation have fallen, the largest white-owned banks have increasingly targeted affluent blacks with a broad range of personal services that no small black-owned bank can compete with. Thus, black-owned banks are forced to serve the least profitable clients.
Our suggestion is that the federal regulators, led by the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp., develop a collaborative strategy with black-owned banks. But we believe that all major banks should be given an opportunity to participate.
Some of the elements that should be considered in this strategy to reinvigorate black-owned financial institutions include:
- Provide special Community Reinvestment Act credit to any large bank that develops effective relationships with black-owned banks that embrace a formal approach to “Strengthen the Black Community. This could include encouraging large banks to create a multibillion-dollar pool of funds that black-owned financial institutions and their partners can draw on for projects that, for example, maximize black homeownership (presently 41% versus almost 63% overall in the nation.)
- Promote small and microbusiness lending to black-owned businesses. Currently, it is estimated that far less than 1% of the dollar-volume of business loans are awarded to black-owned businesses.
- Develop special projects in conjunction with highly-respected black churches to promote the services that black-owned banks could provide communities. Churches have often been at the forefront of black social and economic advances, such as financial education for millennials and members of Generation Z.
Could these types of efforts definitely end the decline of black-owned banks? Absolutely not. The decline of black-owned banks is part of a larger economic force that has also hampered the development and expansion of, for example, Latino-owned and Southeast Asian American-owned banks.
But, if a strategy like the one we are recommending were successful, it would not only bring hope to 45 million blacks but would be an inspiration for other minorities who seek to be more effectively served by financial institutions that understand their needs.
Mark Whitlock is pastor of Christ Our Redeemer A.M.E. Church in Orange County, Calif. Faith Bautista is the president and CEO of National Asian American Coalition. Gil Vasquez is managing partner of the certified public accounting firm Vasquez & Co. LLP and chairman of the Los Angeles Latino Chamber of Commerce. All are members of the National Diversity Coalition.