Can they fight an economic slowdown or crisis?

Black banks have struggled to stay afloat for a few decades. There are only 42 left in the country, according to Investopedia. Between 1888 and 1934, there were 134 black-owned banks. Since the so-called racial reckoning following the police killing of George Floyd in May 2020, some of the nation’s largest banks have pledged to invest hundreds of millions of dollars in black banks to help these institutions overcome the financial difficulties of the covid-19 pandemic. But can they survive an economic downturn or other crisis?

JPMorgan Chase, Citigroup, Wells Fargo and Bank of America made equity commitments estimated at $300 million in minority-owned banks — mostly black-owned businesses as of June 2020, Black Enterprise reported. Morgan Stanley has also committed $14.6 million in equity grants, according to the National Bankers Association (NBA), and other investments have come from other institutions.

As with other black-owned businesses, the covid crisis has hit black banks harder than other banks. But now, as the country faces a possible recession, black banks could face another crisis.

Like other Back-owned businesses, a recession could be a blow to black-owned banks. “If we slip into a recession, I predict it will be bad for black-owned businesses,” Robert Fairlie, a professor at the University of California, Santa Cruz, told Forbes. Black-owned businesses have struggled during the pandemic “and don’t have large cash reserves, owner wealth, or access to bank credit to weather another recession.”

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Black-owned banks are still vital to Black America as they provide financial services to citizens who have been consistently discriminated against by other financial institutions. They provide more money to low- to middle-income residents because they are more open to handling higher levels of risk. In 2016, 67% of mortgages issued by black-owned banks were either Federal Housing Administration (FHA) mortgages, which tend to serve riskier borrowers, or mortgages held “in portfolio,” which means that they are exposed to the risk of borrower default. , according to research by Investopedia.

Black-owned businesses tend to be more welcome at black-owned banks when it comes to lending.

“The black community has for years been afraid to do business with traditional institutions. A lot of them live in banking deserts where there are no banks, that’s also why you have credit unions, check cashing places and payday loans,” Tyrone Ross, CEO from Onramp Invest, an integration of crypto assets. platform solution for financial advisors, Investopedia told Investopedia when discussing the need for black banks.

Ross added, “I think we have a responsibility now to realize that – if you really want to be popular and you really want to help black Americans – get that money from black banks and then have those black banks fund the people.

Some black-owned banks have consolidated to deal with the fallout from the covid crisis, but that hasn’t been enough to help them compete with the big banks in the country. Then there is the matter of attracting customers. Black households were about five and a half times more likely to be unbanked than white households, a 2019 FDIC survey found, The Wall Street Journal reported.

Even with the cash injections from the big banks, the black-owned ones still have much smaller assets. Their assets total just over $7.7 billion, according to BankBlackUSA.

“Black banks will always need to raise more capital because we just don’t have access to public markets like majority banks,” B. Doyle Mitchell, president and CEO of Industrial, told Yahoo. Bank based in Washington DC. Finance.

Black banks also have fewer assets than others owned by different ethnic groups across the United States, Black Enterprise reported. Black banks hold only about 2% of the $338 billion+ for all ethnic banks surveyed. Asian banks, on the other hand, hold about 51%, and Hispanic financial institutes hold about 42% of those assets.

“Black banking will never make sense on this level,” William Michael Cunningham, an economist and owner of Creative Investment Research in Washington, DC, told Black Enterprise. “They will always have a limited impact.”

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