All Articles Tagged "financial institutions"
Minority Banks Are Failing. Do They Still Matter?
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Black-owned banks once offered financial credit and stability to the African American community. The Huffington Post found that the number of black-owned banks across the nation has decreased drastically. “In 1994, 54 such banks were identified by the FDIC; now there are just 28,” reports HuffPo.
One city where minority banks have been hit hard is Chicago. According to Chicago Business
Among those that have already failed are ShoreBank, which had $2 billion in assets and was one of the city’s most active lenders catering mainly to African Americans, and $1.6 billion-asset Mutual Bank of Harvey, an Indian-American-owned bank.
Besides the recession, other experts say minority banks are failing because they aren’t needed. “While most bankers and business leaders in minority neighborhoods of Chicago believe that loans are hard to obtain in those areas, both for businesses and consumers, they don’t all see the minority banks moving aggressively to provide that credit,” notes Chicago Business. During the 1960s and 1970s, non-white borrowers had trouble obtaining loans, so minority banks cropped up to fulfill these financial needs. But because of the federal Community Reinvestment Act, a 1977 law that requires banks to lend in less-advantaged areas of their communities, this is not as of much an issue anymore.
But Monique Morris, NAACP Vice President for Economic Programs, argues that black-owned banks are still necessary. “The role for black-owned financial institutions is the same as it has always been — to support the financial needs of the communities in which they are located. They leverage deposits and support the formation and development of emerging enterprises that will produce jobs and improve the economic landscape of our communities,” she writes in The Grio.
Financial Shenanigans: Credit Reports Tell You One Thing, Tell Lenders Something Else
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The Consumer Financial Protection Bureau (CFPB) has found that one in five people who look at their credit report are seeing a version that’s different from the one that lenders see when they pull that person’s info.
According to The Huffington Post, the CFPB examined 200,000 reports from the three major credit reporting agencies (it doesn’t specify, but that’s usually Experian, TransUnion and Equifax) and found that between 19 and 24 percent of the time, the differences in the scores were significant. Credit agencies use their own scoring models to determine a person’s score. As you know, banks and other lenders use these scores to determine whether a person is too much of a risk to lend money to. They also determine the cost of the loan you’re getting.
HuffPo reports, ”[The discrepancy] could lead those consumers to waste time applying for loans they cannot afford or to take out loans with worse terms than they could get if they saw the same score as the lender, the consumer agency said.”
The CFPB was created by the Dodd-Frank law, which itself was a response to the Great Recession. The group has been charged with keeping an eye on 30 credit reporting companies, among other things. These findings demonstrate the need for an organization like this.
Unfortunately, if there’s information going to lenders that you’re not privy to, there’s not much that you can do. But, consumers would be smart to keep an eye on the credit scores they do have access to, making sure that there are no glaring mistakes and correcting ones that are found. Consumers are at a disadvantage, so they have to have a firm grasp on all the data they can control.
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The Number of Black-Owned Businesses, And the Need for Resources, Is Growing
Image: Digital Visions
The latest Census numbers show that the number of black-owned businesses (defined as those companies in which African Americans own at least 51 percent of the equity, stock, or interest) jumped 60.5 percent between 2002 and 2007 to 1.9 million.
But, Reuters reports, only about 100,000 of these companies have employees. Far fewer, 14,000, gross $1 million or more in a year.
One vital necessity for any burgeoning business (besides customers) is resources. “Limited access to financing… restricts the ability of minority business enterprises (MBEs) to achieve viability, generate new jobs and, in general, fulfill their potential to contribute to the development of communities in which they operate,” write Timothy Bates, a professor at Wayne State University and Alicia Robb, a senior research fellow at the Ewing Marion Kauffman Foundation, in a guest article for Forbes. The two conducted research that found that MBEs rely on financial institutions more than other capital resources, but are more likely to run into issues like higher interest rates or outright rejection when trying to secure a loan or other funding.
MBEs trying to plant a flag in minority neighborhoods are also more likely to use things like consumer credit cards to get their businesses going, which also come at a steep financial cost.
Bates and Robb say the government and its regulators should be better at enforcing existing anti-discrimination laws, and they’re absolutely correct. They also suggest that breaking down barriers at the nation’s financial institutions would help minority-owned businesses get on their feet.
Reuters also provides a list of businesses and organizations that black-owned businesses can turn to for resources including the Department of Commerce’s Minority Business Development Agency, Black Business Women Online, the Small Business Administration and American Express, whose OPEN Forum program is especially for small businesses.
And working your personal network of resources, even if it’s just a good friend who can spread the word about your new business, can be helpful in building a cadre of loyal customers. Selling your product or service is a great resource as well.
Law Boosts Gov't Contracts Among Minorities and Women
(Washington Post) — Section 342 of the recently enacted Dodd-Frank Act requires nearly 30 agencies that oversee the financial system, including the Federal Reserve, the Treasury Department and the Federal Deposit Insurance Corp., to establish offices of minority and women inclusion to monitor diversity within their ranks and the pool of contractors who provide goods and services to the government. Federal Reserve system and some of the agencies essentia The lly were exempt from contract diversity efforts previously. The provision was introduced by Rep. Maxine Waters (D-Calif.), who argued that minority- and women-owned firms were largely shut out of getting a piece of the billions of dollars the government spent to bail out financial institutions. Now, though, every woman- and minority-owned firm in the Washington region has a chance to benefit, with the provision offering them an avenue to reap millions of dollars in new annual revenue.
Nation’s Largest Black Bank in Trouble
(Black Enterprise) — Carver Federal Savings Bank, the financial institution currently holding the top spot on the BE BANKS list, is fighting for its future. The nation’s largest black-owned bank must significantly boost capital reserves by month’s end or risk a potential shutdown, takeover or sale of the bank. William Michael Cunningham, social investment adviser atCreative Investment Research Inc., a Washington D.C. firm specializing in minority banking, estimates that Carver Bancorp Inc., parent of the Harlem-based bank, must raise nearly $20 million in new capital by April 30, 2011, to meet orders by the Office of Thrift Supervision, the primary regulator of all federal and a number of state-chartered savings banks. In response, Carver Bancorp spokesman Michael Herley says “we are working very hard to meet this requirement and are looking at a variety of options.” The bank, however, did not offer details to BlackEnterprise.com on its capital-raising plan.
The adversity faced by Carver comes at a time when federal banking regulators have closed or forced the sale of nearly 350 banks nationwide – including five black-owned institutions in the past six months – since the financial crisis began in 2008. In fact, Seaway Bank and Trust Co. (No. 8 on the 2010 BE BANKS list with assets of $385 million ) recently assumed control of Legacy Bank (No. 13 on the 2010 BE BANKS list with assets of $231 million) when the institution went into receivership after being walloped by the Great Recession and hefty loan losses.
Carver Federal Savings on the Brink
(Crain’s) — The parent of Carver Federal Savings Bank holds its annual stockholders meeting April 4 at The Studio Museum in Harlem, near the bank’s 125th Street headquarters. It could be the last. Time may be running out for Carver, the nation’s largest bank founded and run by African-Americans and an integral part of the city for 63 years. Staggering under a load of delinquent real estate loans, the bank is under orders from the U.S. Office of Thrift Supervision to raise $20 million in fresh capital by the end of this month. That’s a steep climb for a bank that at best posts annual profits of $5 million. Yet if Carver can’t raise the cash, regulators can either seize the institution and sell it to another bank, or dissolve it.
Longtime Chief Executive Deborah Wright has pulled Carver back from the brink before and has many high-level business and political connections who could help the bank get the needed funds. But backers would be buying into an institution where 12.3% of the loan portfolio is more than 90 days delinquent. The industry average is 4.9%, according to Federal Deposit Insurance Corp. data. In addition, although $74 million of its loans are well overdue, Carver has just $21 million in reserves to cover loan losses. “It’s worrisome,” said William Michael Cunningham, founder of Creative Investment Research, a Washington firm that tracks minority-operated banks. “Carver faces real challenges, because the impact of the financial crisis has hit the communities that it serves especially hard.”
Judge Tosses Merrill Lynch Discrimination Suit
(Investment News) — U.S. District Judge Robert Gettleman dismissed a bias lawsuit brought by African-American financial advisers challenging a broker retention bonus program at Bank of America Merrill Lynch. The suit claimed that the brokers were victims of systematic discrimination at the former Merrill Lynch & Co. Inc. and, as a result, received smaller retention bonuses from Bank of America when it acquired the struggling investment bank in early 2009. The case — George McReynolds, et al., v. Merrill Lynch, Pierce Fenner & Smith Inc., Bank of America Corp. — is the second filed on behalf of 16 brokers at Merrill who claim that the firm steered more-lucrative accounts to white brokers. As a result, the African-American reps managed less money, produced less revenue for the firm and thereby received smaller bonuses.
Judge Tosses Merrill Lynch Discrimination Suit
(Investment News) — U.S. District Judge Robert Gettleman dismissed a bias lawsuit brought by African-American financial advisers challenging a broker retention bonus program at Bank of America Merrill Lynch. The suit claimed that the brokers were victims of systematic discrimination at the former Merrill Lynch & Co. Inc. and, as a result, received smaller retention bonuses from Bank of America when it acquired the struggling investment bank in early 2009. The case — George McReynolds, et al., v. Merrill Lynch, Pierce Fenner & Smith Inc., Bank of America Corp. — is the second filed on behalf of 16 brokers at Merrill who claim that the firm steered more-lucrative accounts to white brokers. As a result, the African-American reps managed less money, produced less revenue for the firm and thereby received smaller bonuses.
Banks Blamed for Credit Union Troubles
(Wall Street Journal) — Federal regulators are blaming Wall Street’s biggest firms for the collapse of five institutions at the heart of the nation’s credit-union industry and are seeking to recoup tens of billions of dollars in losses on securities that doomed the five. In one of the broadest accusations that Wall Street helped cripple financial institutions during the crisis, the National Credit Union Administration, or NCUA, has threatened to sue several investment banks unless they refund over $50 billion of mortgage-backed securities sold to the five institutions, called wholesale credit unions.
The NCUA is accusing Goldman Sachs Group Inc., Bank of America Corp.’s Merrill Lynch unit, Citigroup Inc. and J.P. Morgan Chase & Co. of misrepresenting the risks of the bonds to wholesale credit unions, which loaded up on the bonds in their role of investing on behalf of retail credit unions, according to people familiar with the situation. Regulators seized the five wholesale credit unions in 2009 and 2010, inheriting a pile of battered bonds now worth only about $25 billion, or half of their face value. The wholesale credit unions, also known as corporate credit unions, are at the heart of the nation’s credit-union system. They not only invest customer deposits but also provide services such as check clearing for nearly 8,000 “retail” credit unions—member-owned cooperatives that act somewhat like banks for firefighters, teachers and other workers who have something in common.
The Rise of Prepaid Cards
(Network Journal) — The trend of pre-paid credit cards targeted toward African-American consumers seems to be on the rise and made all the more alluring through alignment with notable personalities to the demographic such as lifestyle mogul Russell Simmons and radio personality Tom Joyner. Financial institutions seem to identify the Black segment as one of large opportunity due to recent statistics released by the Federal Deposit Insurance Corporation which states that 25% of all U.S. households are unbanked or underbanked. Of the households surveyed, 7.7 percent were unbanked, which translates nationally to 9 million households – approximately 17 million adults. An additional 17.9 percent – or 21 million households nationally (approximately 43 million adults) – were found to be underbanked.
