Minority Banks Are Failing. Do They Still Matter?

November 27, 2012  |  

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, “Before the financial crisis that hit in 2008, the Chicago area was home to 17 banks owned by or focused on lending to minorities. Six since have failed, and five are saddled with so much in troubled assets that their futures are in question.”

What remains are five banks catering to African Americans, one to Hispanics, and six to Asian Americans. But even these are struggling to stay open; two black-owned banks, Covenant Bank and Highland Community Bank, and one Asian lender, American Metro Bank, are trying to find funding in order to continue operating. The one remaining Latino bank, Aztec-America Bank, and another Asian bank, United Trust Bank, have high levels of troubled assets, which means they too might close their vaults.

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.

Minority banks have been reaching out to larger institutions for financial help. Goldman Sachs, for example, recently bailed out Harlem’s Carver Bankcorp. And, financial writer Suzy Khimm blogs in the Washington Post, Facebook’s IPO included minority- and women-owned banks as underwriters. But the key for minority banks to survive, suggests Khimm is “[t]hey need to regain that trust to serve, or other locally minded institutions might displace them.”

Want to support a minority owned bank? Check out Office of the Comptroller of the Currency (OCC) list of Minority- and Women-Owned Banks.

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