In recent years, Black-owned banks have enjoyed rising support from the general public, major corporations, and even other banks. For example, since 2020, Bank of America, Wells Fargo, and JP Morgan Chase have all publicly committed millions of dollars in financial support and investment to Black-owned financial institutions, as have Netflix, Paypal, and Microsoft. Here’s a closer look at the history of Black-owned financial institutions, the challenges they’ve faced, and the unique benefits they offer their communities. To help you #BankBlack, we’ve compiled a list of Black-owned banks and credit unions, including the states they serve and their number of branches, near the bottom of this article.
What Are Black-Owned Banks?
Black-owned banks and credit unions are federally insured depository institutions that serve customers from all racial and ethnic backgrounds but are largely owned or directed by Black Americans. Black-owned banks are included in the FDIC’s Minority Depository Institution (MDI) Program, which seeks to preserve and promote MDIs. To qualify as an MDI, at least 51% of the bank’s voting stock must belong to shareholders who are Black, Asian American, Hispanic, or Native American. An institution can also be considered if the majority of its board of directors are members of these minorities and it serves a predominantly minority community. Like all credit unions in the U.S., Black-owned credit unions are regulated by the National Credit Union Administration (NCUA). The NCUA’s definition of MDI is slightly different from the FDIC’s. To qualify as an MDI, the majority of a credit union’s membership, board of directors, and community must belong to the minority groups listed above, which are defined by the Financial Institutions Reform, Recovery and Enforcement Act of 1989.
Why Are Black-Owned Banks Important?
Black-owned banks have historically served communities that were otherwise overlooked or shut out by other financial institutions. In addition, Black-owned banks offer support to entrepreneurs and lower-income Black Americans who have been historically less likely to open accounts or borrow money from mainstream, often White, financial institutions—or outright prevented from doing so. Many Black-owned banks are recognized as federal MDIs and/or Community Development Financial Institutions (CDFIs), which prioritize the needs of the underserved communities in which they are based.
A Brief History of Black-Owned Banks
Black-owned banks have a long and often painful history, dating back to the mid-19th century when the first bank committed to serving Black Americans opened. The Freedman’s Savings Bank, once seen as a beacon of hope for formerly enslaved people, failed after less than a decade—causing more than 60,000 Black people to lose their savings, which would add up to $65 million in today’s dollars. Many historians blame the bank’s failure on its mostly White administrators, who engaged in speculation and corrupt behavior; for example, one trustee used the bank’s assets to benefit his own family business. The bank’s failure, and the poor oversight that enabled it, helped seed profound distrust among many Black Americans toward the safety and reliability of mainstream financial institutions. The first bank founded and run by Black Americans opened in 1888, and by the beginning of the Great Depression, more than 130 Black-owned financial institutions were operating across the country. “The motivation to create many Black banks […] was rarely a purely financial endeavor or business opportunity,” wrote Esther George, president of the Federal Reserve Bank of Kansas City, in the foreword to “A Great Moral and Social Force,” a book about the history of Black-owned banks. “Instead, many were created with a primary mission of public service.” However, the Great Depression decimated the number of Black-owned financial institutions. In addition, discriminatory practices once deemed legal sapped the wealth-building capabilities of the banks’ customers. As University of California-Irvine Law Professor Mehsra Baradaran noted in her book, “The Color of Money,” Black-owned banks have historically served a customer base whose own financial resources and prospects have been repeatedly hamstrung by centuries of racist policies and practices toward Black Americans, including decades of overt housing discrimination and deliberate exclusion from financial and social resources. For example, by the mid-1930s, the Home Owners Loan Corporation and the Federal Housing Administration had introduced discriminatory lending practices known as redlining, in which they defined certain areas and neighborhoods as “higher-risk”—thinly veiled racism based on the race and ethnicity of the community’s residents. These practices made it easier for mainstream lenders to avoid issuing mortgages to Black Americans, preventing them from buying homes and beginning to accumulate wealth. The number of Black-owned banks declined through the 1980s and 1990s. The 2008 financial crisis was particularly devastating: More than half of Black-owned banks in the U.S. closed their doors between 2007 and 2019. Today, they make up just 0.4% of the 4,377 insured banks in the U.S.
Why Has the Number of Black-Owned Banks Declined?
Black-owned banks have struggled to respond to economic shocks due to their smaller size and limited assets. “As of the second quarter of 2021, Black-owned banks held about $6 billion in total combined assets, as compared to over $22 trillion in total assets in the U.S. banking system as a whole,” testified Robert James II, chairman of the National Bankers Association, before the Senate Banking Subcommittee on Financial Institutions and Consumer Protections in February 2022. “Put another way, Black-owned banks only control 27 thousandths of 1% of total bank assets in the United States.” Most loans issued by MDIs, including Black-owned banks, are secured by real estate, such as mortgages, James told the Senate subcommittee. “The legacy of redlining and associated chronic undervaluing of real estate in Black communities created lower asset values for minority banks’ collateral, which led to massive write-downs of bank collateral.” This collateral is essential in allowing banks to grow, receive more deposits, and withstand loan losses and defaults, which increased sharply during the 2008 financial crisis. “Without access to capital markets or large pools of high-net-worth investors, many Black MDIs were forced to exhaust their capital reserves, failing as a result,” said James.
What Does the Future Hold for Black-Owned Banks?
Increasing support for Black-owned banks has many financial leaders feeling optimistic about the future. The viral #BankBlack movement launched by rapper Killer Mike in 2016 inspired many people and organizations to move their money to Black-owned financial institutions, boosting their assets.The calls were renewed and intensified in 2020 during social justice protests after the killings of Ahmaud Arbery, George Floyd, and Breonna Taylor. One Black-owned bank in North Carolina saw a 20% jump in deposits in 2020, its president told public radio station WBUR. Netflix pledged to move $100 million in deposits into Black-run financial institutions, and Microsoft committed to investing $100 million in MDIs, focusing on Black-owned banks.
Black-Owned Banks
Today, there are 19 FDIC-approved Black-owned banks.The most recent change to the number occurred in October 2021, when Liberty Bank acquired Tri-State Bank of Memphis.Because banks and credit unions have important differences, we’ve opted to split them into two separate tables, so you’ll find a list of credit unions further down. However, the nationwide bank OneUnited—also a Community Development Financial Institution—is still frequently cited as the country’s biggest Black-owned bank based on the number of customers it serves. It also markets itself as the nation’s first Black internet bank. In addition, many Black-owned banks have seen their own wealth-building opportunities undercut by social, environmental, and structural challenges, including local and federal policies that have uniquely disadvantaged minority-owned financial institutions.
