Black banks have struggled to stay afloat for the past several decades. Accordingly, there are only 42 left in the country Investopedia. Between 1888 and 1934 there was 134 Black-owned banks. Since the so-called racial bill following the police killing of George Floyd in May 2020, some of the country’s largest banks have pledged to invest hundreds of millions of dollars in black banks to help those institutions weather the financial hardships of the Covid-19 pandemic to survive . But can they survive an economic downturn or other crisis?
JPMorgan Chase, Citigroup, Wells Fargo and Bank of America made an estimated $300 million in equity commitments in minority-owned banks as of June 2020 – primarily Black-owned businesses, Black Enterprise reported. Morgan Stanley has also committed $14.6 million in equity grants National Bankers Association (NBA), and further investment came from other institutions.
As with other black-owned businesses, the Covid crisis hit black banks harder than other banks. But now that the country is facing a potential recession, black banks could face another crisis.
As with other back-owned companies, a recession could deal a severe blow to black-owned banks. “If we do slide into a recession, I predict it’s going to be bad for black-owned businesses,” said Robert Fairlie, a professor at the University of California, Santa Cruz forbes. Black-owned businesses have struggled through the pandemic “and do not have large cash reserves, ownership assets, or access to bank credit to weather another recession.”
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Black-owned banks are still vital to Black America as they provide financial services to citizens who have been consistently discriminated against by other financial institutions. They make more money available to low- and middle-income residents because they are more open to dealing with higher risks. In 2016, 67 percent of mortgages issued by black-owned banks were either Federal Housing Administration (FHA) mortgages, which serve more risky borrowers, or mortgages that are “held on portfolio,” meaning that they are at the risk of the borrower delinquentaccording to Investopedia research.
Black-owned businesses tend to be better received by black-owned banks when it comes to lending.
“The Black community has feared banking with traditional institutions for years. Many of them live in banking deserts where there are no banks, which is why there are also credit unions, check cashing houses and payday loans,” Tyrone Ross, chief executive officer (CEO) of Onramp Invest, a crypto-asset integration platform solution for financial advisors, said Investopedia in discussing the need for Black Banks.
Ross added, “I think we have a responsibility now to recognize that — if you really want to be on the grassroots and really want to help black Americans — put that money in black banks and then let those black banks fund people.”
Some black-owned banks have consolidated to deal with the fallout from the Covid crisis, but it hasn’t been enough to help them compete with the country’s big banks. Then there is the problem of customer acquisition. Black households were about five and a half times more likely to be unbanked than white households, according to a 2019 FDIC survey. The Wall Street Journal reported.
Even with the cash injections from the big banks, the black-owned still have far smaller fortunes. Her net worth is reported to total just over $7.7 billion Bank Black USA.
“Black banks are going to need more and more capital because we simply don’t have access to the public markets like the majority banks,” B. Doyle Mitchell, President and CEO of Washington DC-based Industrial Bank, said Yahoo Finance.
Black banks also have fewer assets compared to others owned by different ethnic groups in the US, Black Enterprise reported. Black banks hold only about 2 percent of the more than $338 billion of all ethnic banks surveyed. In contrast, Asian banks hold around 51 percent and Hispanic financial institutions around 42 percent of these assets.
“Black banks will never matter at this level,” William Michael Cunningham, economist and owner of Creative Investment Research in Washington, DC, told Black Enterprise. “They will always have limited impact.”
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