Wednesday, December 05, 2012

Do African American Banks Still Exist



                                                                        Capital Savings Bank

Some may wonder do African American banks still exist and if so are they profitable.  Many African American owned banks are struggling to remain profitable.  Their traditional customer base - low and middle income African Americans, small business owners and churches has been disproportionately affected by high unemployment due to the after effects of the recession, leaving customers with less money to deposit and leaving many of the smaller financial institutions with less capital to reinvest in their communities.

Many customers have fallen behind on their loans or mortgage payments or have foreclosed on their homes which have been a main source of revenue for African American banks.  Several higher income customers with larger savings and checking accounts elect to do business with larger banks such as Wells Fargo or Bank of America, which offer branches nationwide and offer a wider variety of services.

African American banks were first developed after slavery ended and functioned mainly to help build African American wealth. The first African American owned and operated bank was Capital Savings Bank in Washington, DC, established in 1888.  It prompted an explosion in African American businesses and offered African Americans a new resource they had been previously denied at Caucasian banks. African American banks were traditionally conservative and had close ties to local churches, families and local businesses.

Due to the smaller resources and revenue when the community suffers, the banks suffer.  If a community is struggling financially it affects if they can pay their bills or give to their church or charities.  Churches have huge loans and when members are unable to give or give less this affects the churches ability to make their loan payments.

The number of African American owned banks across the country is continuing to decrease. In 1994, the FDIC identified 54 African Americans banks but in 2012 there are only 28  fdic.gov/regulations/resources/minority/minority1q2011_status.html.

The majority of the African American banks usually has $20 million in assets or less and are unable to compete with larger banks for customers. Immediately after the recession, larger banks saw African Americans as a new market and targeted African American customers with predatory loans and subprime mortgages.  African American banks were not in a position to offer these African American customers help due to lack of revenue and resources.

Some federal and state regulators don’t want to provide funding or assistance to African American banks because they feel areas with high unemployment are an investment risk.

African American owned banks have been prevented from participating in alternative means of capital that could help them stay afloat, such as TARP, the Small Business Lending Fund and major funding by private investors.

The few African American owned banks that have participated in these programs were frustrated with the restrictions that come along with the low-interest federal loans. The terms allow the government to make board appointments, become a shareholder of the bank and impose restrictions in how the bank pays dividends, to pay employees and to dictate how the bank disperses money and to whom. Some banks felt as if the regulators were "micromanaging" their accounts.

Earning income has also become more difficult as a result of high compliance costs due to regulatory scrutiny of transactions. However, without financial assistance, African American owned banks are offering fewer loans, which results in less income.

African American banks must find alternative funding sources such as Minbanc formed by the Americans Bankers Association which supplies capital funds to African American banks or large non-minority associations.

Perhaps if African American banks changed their business model and expanded their services such as offering mobile banking, online banking, “going green” and using social media they could capture lost customers, retain existing customers and generate additional revenue.

1 comment:

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