What are Black-owned banks and how to support them?

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If you’re looking for actions you can take to promote racial equity and inclusion, consider where you bank.

Supporting Black-owned banks can help economically empower an underserved community, in which African Americans historically have faced discriminatory banking practices and systemic racism. As an alternative to larger institutions, Black-owned banks have provided mortgages, loans and accounts to people of color when other banks would not provide those services to them.

“Black banks are typically mission-focused, and they are all community banks,” says Michael Neal, senior research associate for the Housing Finance Policy Center at the Urban Institute.

What is a Black-owned bank?

Being a Black-owned bank or credit union is a federal designation. The Federal Deposit Insurance Corp, or FDIC, classifies these institutions as Minority Depository Institutions, or MDIs. The feds define MDIs as any depository institution in which minority ownership is 51 percent or greater, or in which the majority of board members is composed of minority members and the community the bank serves is predominantly minority.

“What makes that more poignant is that Black-owned banks have a fraction of the assets that the mainstream banks have,” says Stephone Coward, co-founder of Bank Black USA, an organization that formed out of the larger #BankBlack movement to encourage people to move their money to Black-owned banks.

The top four banks in the U.S. each have more than $1.6 trillion in assets. By comparison, there is no Black-owned bank with more than $750 million in assets.

“It is crystal clear that Black banks have not benefited from the same level of support from the government and big business that the ‘Big Banks’ have,” Coward says. “They have significantly fewer resources to pull from to support the communities they serve and beyond.”

Black-owned banks and credit unions

Banks

Bank Headquarters
Broadway Federal Bank Los Angeles
Carver State Bank Savannah, Ga.
Citizens Trust Bank Atlanta
First Independence Bank Detroit, Mich.
The Harbor Bank of Maryland Baltimore
Industrial Bank Washington, D.C.
OneUnited Bank Boston
Unity National Bank Houston

Credit unions

There are 514 credit unions out of over 5,200 that qualify as minority institutions; about three-fourths of these minority credit unions are partially or completely Black-owned.

A few of the major credit unions are:

Credit union  Headquarters
Andrews Federal Credit Union Suitland, Md.
Democracy Federal Credit Union Alexandria, Va.
 St. Louis Community Credit Union St. Louis, Mo.

Fintech firms

Although not federally designated, Black-owned fintech firms are gaining momentum in the minority-focused banking space. Among them are:

Fintech company Headquarters
Breaux Capital Brooklyn, N.Y.
Grind Banking Los Angeles

How you can support Black-owned banks

One of the primary ways to support Black-owned banks is simply by doing business with them, either by opening an account or taking out a loan or line of credit. Another approach is to become an equity stockholder in a Black-owned financial institution.

A common misconception is that Black-owned banks only lend to minorities. This couldn’t be further from the truth, says Kenneth Kelly, chairman of the National Bankers Association (NBA), the trade group for minority banking, and CEO and chairman of First Independence Bank in Detroit.

“While true that these institutions have a propensity for serving minorities, they also serve the needs of any people who desire to do business with them,” Kelly says.

Because Black-owned banks serve an essential role in building wealth in minority communities — but are declining in number — these institutions need support on a policy level, too, Neal says.

“Calling your member of Congress is one key way of putting that on his or her mind,” Neal of the Housing Finance Policy Center says. “It’s an inexpensive, immediate step people can take, particularly since this is an election year.”

History of Black-owned banks

Black-owned banks have been around for nearly a century and a half, dating back to the charter of the True Reformers Bank in 1888. The bank came into existence after the failure of the Freedman’s Savings Bank, which the U.S. government established in 1865 to offer financial services for newly freed African-Americans.

“Unfortunately, it was not run by African-Americans, so there was a disconnect in terms of the investments made by those managers,” Kelly says. Freedman’s Savings went bankrupt in less than a decade.

Black-owned banks flourished during the civil rights movement, and about 50 institutions were operating by 1976. Those numbers shrunk during the savings and loan crisis of the 1980s, and again during the Great Recession. Only about half of the Black-owned banks that existed in the early 2000s remain today.

The Black Lives Matter movement is helping raise awareness about Black-owned banks, with initiatives like OneUnited Bank’s #BankBlack  movement — which started in 2016 after deadly police shootings in Black communities — challenging more people to open accounts with these institutions.

“This is an opportunity for everyone to consciously include a sector or financial institution that historically they may not have,” Neal says.

Why should someone consider banking with a Black-owned bank

Doing business with a Black-owned bank or credit union is a way to show solidarity with Black communities that may have experienced discriminatory banking practices and systemic racism.

“It is crystal clear that Black banks have not benefited from the same level of support from the government and big business that the ‘Big Banks’ have,” Coward says. “They have significantly fewer resources to pull from to support the communities they serve and beyond.”

As community banks, these institutions can provide opportunities to develop a closer relationship with your banker.

Kelly cites small businesses trying to obtain federal Paycheck Protection Program (PPP) money during COVID-19 as an example of how community banks can provide an advantage.

“Those customers who had relationships with their bankers were more likely to be successful earlier than those who did not,” Kelly says. “When you’re working with larger institutions, sometimes it’s easy to get lost.”

How to switch banks

When deciding to move your money from one institution to another, Coward recommends doing so at a pace that is comfortable to you. “Making the switch does not mean that you have to move all your money at once,” Coward says. “You can start with savings and build your way up to a checking account.”

Anytime you switch your funds to a new bank account, remember to move your direct deposits and automated transfers along with it. Also factor in any fees your new bank may charge.

Even though not all areas of the country have a Black-owned bank, you can search sites like Mighty Deposits to find an institution where you can open an account online.

“Black banks, by themselves, are by no means the panacea to closing the racial wealth gap or ending systemic racism,” Coward says. “However, they can be a tool, an arrow in the quiver and part of a multi-pronged approach to improving the financial stability and, ultimately, the financial literacy of communities in need.”

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