Too Small To Fail? Why Black Banks Are Struggling & How They Can Survive

February 26, 2015  |  

When is the last time you used a Black-owned bank? Probably a long time, if ever. And now as other banks continue to improve and modernize, many Black-owned banks seemed stuck in time. And this could mean the end to the remaining 25 Black-owned banks in America.

According to analysts 60 percent of Black-owned banks lost money in 2013. In 2001 there were 48 Black-owned banks.

“I would venture to say that [the vast majority of Black banks] are in varying degrees of trouble,” said Darrell Jackson, the chief executive and president of Chicago’s Black-owned Seaway Bank, told The Washington Post. Seaway is celebrating its 50th anniversary.

Not only were Black banks hard hit by the economic crisis (most were ineligible for federal bailouts), but they have seen customers leave in droves. One reason behind this customer exodus is Black banks have failed to modernize their services. “Few offered the branch networks, computerized banking and other automated services that have come to dominate the business. And many of the banks failed to follow the African-American middle class to the suburbs,” reports the Post.

And when looking at the numbers, Black banks control merely $5 billion in assets. Compare this to  banking giants like Wells Fargo, which alone has around $1.7 trillion in assets.

“This is such an extremely important sector of the banking community,” said Michael A. Grant, president of the National Bankers Association, the lobbying group for Black banks. “We were hit so hard during this sub-prime crisis, and they are having a hard time working their way back from that.”

In addition to suffering from the recession and a lack of modernization, there could be another reason Black-owned banks are barely surviving.

According to Paul O’Connor, founder of Angkor Strategic Advisors, a Chicago-based banking consultancy, Black banks are also victims of the  progress African Americans have made in the country.

“The positive side of this is that the African-American community has developed in a way that they don’t need African-American banks like they did 50 or 70 years ago,” he said. “Also, they have a margin for error that is much smaller than most banks. At the end of the day, you are banking human beings and they are as good a credit risk as the last job they had. A lot of people these institutions banked are hurt economically.”

Regardless of the reasons, many say Black-owned banks are still needed as they remain important to underserved communities. But in order for them to see a turnaround, something has to be done. As such Grant points out that more Black consumers should bank with institutions that serve their communities.

“The African-American community itself is going to have to do more to support its businesses, which includes the banks,” Grant said. “Why are we boycotting our own businesses? These are the banks that were there for us before integration. We should be there for them now.”

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