Investing While Black: Banking
Like many other Black-owned businesses, Black-owned banks currently suffer from undercapitalization and little to no growth. In order for a bank to be a significant contributor to the communities it serves, it must have deposits to provide the assets it needs to be able to make loans. This is why it's important for people who care about Black economic development to move at least some of their funds, especially savings, into Black-owned banks. And given the fact that Blacks are consistently denied loans and charged more for them when they do get them, we need Black banking with more nuanced lending criteria to stop the literal looting of our community by the banking industry.
Currently, Black-owned banks are an insignificant part of the American economy. The prominent bank promoted by Killer Mike, Citizens Trust Bank, founded in 1921 with branches currently in Georgia and Alabama only generated $3.7 million in net income in 2019 with deposits of only $361 million. One United, the largest Black-owned bank had less than $700 million in total assets as of April 30, 2018. Compare that to a regional bank like SunTrust, with $216 billion or a national bank like Bank of America with $2.3 trillion, which is more than all Black-owned bank combined.
I cover this in my book, but here's a quick reminder. Due to the reserve system we operate under in the US, banks can lend more money than they actually have in deposits. So when $1 is deposited, more than $1 can be created "out of thin air" in the form of loans. If those extra dollars are then deposited back into the bank, they can create even more dollars in loans, and so on. This is the multiplier effect that has the potential to significantly boost economic development in Black communities assuming Black-owned banks are actually serving Black people and care about Black economic development.
This last part is a big assumption. Many Black-owned banks don't actually have a strategy for Black-economic development outside of targeting Black consumers, which is why many of them remain relatively stagnant and uncompetitive. From the outside looking in, it seems that none of them have any strategic growth plans to remain competitive, and simply rely on their Black-owned status to coast along. This is not how we move the needle.
Black banks have the potential to help finance much of the strategies I outline in my book, In The Black 2050, but this takes a focused and coordinated strategy with a commitment to Black economic self-determination. Simply being Black isn't enough if you don't have a Black agenda, and as Black consumers, we deserve to have Black-owned banks that truly serve our needs.
Of course I'm not going to point out a problem without offering solutions...
Banking for Black Power
In order for Black banks to become more competitive, they need to focus on the 3 C's of economic development (cooperation, coordination, and culture) and the 3 A's of business development (acquisition, administration, and assets). This is by no means an exhaustive strategy (I would need to evaluate each bank on a case by case basis), but it’s a start.
Black banks need to build partnerships with Black organizations and startups to better serve their financial needs, while maintaining focus and not expanding their product lines into areas where they cannot effectively compete yet. This starts with being exceptional at the core banking functions most people rely on for their day-to-day finances, checking and savings. The signup process and customer experience should focus on user experience first and foremost. There are a whole host of mobile-focused online banking apps (like First Boulevard, MocaFi, and SoFi) that make it extremely simple to get and use a bank account without ever having to go into a bank branch and rarely needing to talk to a person on the phone.
This is where coordination really comes into play. As fintech companies continue to disrupt all aspects of the financial industry, they often have banks in the background to handle customer funds (i.e. Stash, Robinhood, Square, Groundfloor) or help apps connect to bank accounts for payments and merchant services (i.e. Plaid, Stripe, etc.). Black banks should be focusing on developing partnerships with these fintech developers (especially blockchain devs) with a priority centered on working with, supporting, and investing in Black-owned fintech businesses and startups that rely on solid banking and wealth management relationships to make their products/services work.
By prioritizing cooperation, banks will be able to better identify the specific needs of Black business, organizations, and individuals and serve them with tailored solutions, especially where there are gaps not filled by mainstream banks.
There's also an opportunity to partner with local economic development directors in predominately Black cities and towns across the country that need banking services for government operations and capital to finance local development projects. These directors typically know about opportunities before anyone else and banks who have a relationship with them can get first access to any deal flow that comes through them. Furthermore, providing loans and investing in these areas will have a disproportionate and positive effect on Black businesses and consumers due to their demographics.
Building partnerships and collaborations with various entities is not as effective without an overall strategy to coordinate these various stakeholders. Coordination helps us focus on what opportunities to pursue for maximum benefit to reach shared goals. Since banks underpin the entire financial system, they are in a perfect position to lead the effort to coordinate individuals, organizations, businesses, and government agencies and move them all towards an economic vision.
This looks like hosting and sponsoring conferences, educational events, discussions, think tanks, and research groups that deal with Black economic development directly or indirectly in addition to partnering with organizations and chambers of commerce that can play matchmaker to bring people together in collaborative settings. We don't need 100 people working on the same things in silos without being aware of each other and not combining and leveraging resources. There's not a single Black individual or organization in America with enough resources to go it alone.
Black banks are poised to lead the effort to build Black institutional and productive capacity. That should be their primary goal. It goes deeper than just building wealth. What good is paper money if you don't control the government that prints it or the means of production to create more value outside of the financial system? What we need is an entire economy and financial system owned and controlled by Black people with a Black agenda. Anything less is symbolic and superficial at best, possibly even counterproductive.
Again, I don’t have time to explain a full strategy here, but there are very specific steps Black banks need to take in order to build this capacity, and it starts with rapidly growing deposits and increasing profitability to achieve the scale necessary to make a significant impact.
Honestly, I’m tired of explaining this. An economy reflects the culture in which it operates. Most Black bank executives were trained and indoctrinated in Eurocentric/Western systems and cannot think outside of them. These people are intellectually and culturally incapable of truly grasping or executing these strategies. They are bankers who happen to be black, not Black bankers. I understand these people very well, having gone to “prestigious” schools with them and interacted with them in social settings. However, there are a select few that truly get it.
For Black banks to truly succeed, there will need to be a radical shift in leadership. Business as usual has achieved nothing noteworthy since before the Civil Rights Era. We can not afford to keep using the same strategies expecting different results.
All we need is one bank to take the lead and get the ball rolling.