Since the recent protest early mid-2016, and the push by many to move it into the economic space there has been much attention paid to "banking Black". This has led to a surge in accounts at certain Black banks. While in principle, supporting these institutions may seem like a positive thing, and in the short run this may be true, it may be important to take a longer term view of Black banking and Black financial institutions in general.
First of all, I will never be critical of increasing support for quality Black owned businesses and this includes banks. So if you find a Black financial institution that serves your needs and gives you value, absolutely support it.
From a long term Black economic power standpoint, the support of Black banks specifically may need to have a little more thought behind it. Here is why.
1. Black banks are projected to decline from the low 20s down to 7 by 2028. Black banks declined from 48 in 2001 down to 25 in 2014. The number of all independent banks has declined from just over 12,000 in the nation to less than 6,000 from 1980 to 2010.
In other words, banking is a hard industry to have a business in, and it is not going to get easier. When you support a "Black bank" the biggest risk is that you actually make it more profitable to sell to a commercial firm like a Wells Fargo or Bank of America.
Banking Black can be a double edged sword. If we don't support them they risk failure, if we do support them we run the risk of making them more attractive for acquisition by a major banking firm. This is happening to ALL community banks across the nation and not just Black banks. Think about Black Entertainment Television. BET, originally owned by a Black man, Bob Johnson, sold to the highest bidder, Viacom. What was Black owned became a profitably commodity that was sold to a major corporation. This could occur to our Black banks as we inflate their value. Your Black bank account could very well be a non-Black bank account and most likely will if projections are correct.
2. There is an assumption that if we bank Black that it will increase the loans going to Black people and eliminate discrimination that sometimes occurs in non-Black banks. While discrimination does occur at points in non-Black banks as demonstrated by recent awards for discriminatory practices the assumption that Black banks will be able to do more loans is slightly flawed.
One of the biggest challenges to all community banks including Black banks is the Dodd-Frank Act passed in 2010 after the financial crisis. While the target of the act was to address too big to fail financial institutions, in reality it increased the cost and regulatory burden on small banks who can least afford it.
Not only does the cost increase for Black banks under this regulation, it also causes these banks to take less risk in lending to customers. All banks are regulated to certain standards, and this regulation means that, while there are some slight variations in lending, most banks lend in much the same way. Credit score, cash flow, collateral are all the key elements of lending. It doesn't change much whether it is a Black owned bank or a non-Black owned bank.
The point is that the assumption that being at a Black bank will increase loans to Black people may be slightly true, but not at the scale people think. If you have bad credit, no cash flow and limited collateral, you still won't get a loan from a Black bank. Also, making bad loans is one of the main reasons banks fail, so taking on additional risks just because you are Black is not a good business move for a Black bank.
So what do we do? Circling back around to what I said earlier. If a Black bank provides you excellent service and high quality products, absolutely support it. However, we must guard ourselves against thinking that if we do it is going to significantly lead to Black economic power. Instead I think we must do a few things as it relates to Black financial institutions.
We must create more community owned credit unions. These spread out the ownership and control to more Black people from the community. At the general banking level they provide the same financial services as the average bank.
Alternative financial institutions and products must also be explored by Black people. This includes more CDFIs, which are community development financial institutions that are authorized by the Treasury to make various loans in the housing and small business market. Also, we should take advantage of the new crowdfunding platforms like Buy Black Economics has developed. With the new equity based crowdfunding platforms, you can also fund as a Black investor.
At the end of the day, Black financial institutions are important, but these institutions may not necessarily always be Black banks. Supporting Black banks is a good thing, but it absolutely comes with some real risk and limitations over the longer run as it relates to Black economic power. We must be mindful of both the opportunities and the risk because we don't have much margin for error in the Black community.
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