Five things you need to know before you #BankBlackEntrepreneurship

I’ve always thought I wasn’t an activist because I never march, but I’m realizing that there are many ways to be a change agent. Each person has their own way of being a change agent and mine is through social and economic capital. I enjoy volunteering for causes that I feel are important and I also believe upward mobility occurs through financial means.

In a capitalistic society, obtaining economic power is an important step towards moving towards equality. This belief has led me to invest in minority-owned businesses, start my own business, and decide to place my savings in a black-owned bank. These decisions came after self-reflection, discussions with family, and doing my research.

When I decided to place my money in a black-owned bank and a woman-owned investment company (more on that in a future post), I turned to Google for more information. However, it turns out finding information on black owned banks was not as easy as I thought it would be. Even though most academic papers I found were written between the 1970s and 1990s and a lot of current blogs were reiterating the same thing by listing the black-owned banks, I still was able to put together a resource.

My desire to find out information on black owned banks led me down a rabbit hole of information. So much so, that I decided to make a bank black series.  In this series, I share things that I think are important to know before deciding to bank black.

Five things you should know before you bank black is the first in the series. This particular post discusses the first two things I think are important –  the role of banks and the history of black owned banks.

I hope this blog post can serve as a starting point in your quest to bank black. Please share in the comments any insights on how you choose a bank.

Reason 1: Before you bank black you should know the role of banks and how to choose one

I will be completely honest. I did not do any research when I chose my current banks. I chose them when I was in college because one was walking distance from my dorm and the other was where my family banked. Now that I have increased my financial literacy, I realize it is important to have some basic knowledge of financial institutions. Before deciding on banking black, it is important to know the role of banks and how to generally choose one.

Banks exist to provide a secure place to store money, complete transactions, provide financial advice, and distribute loans.

When choosing a bank, you will want to look at a few factors:

(1) Location: Consider choosing a bank that is close to where you work and live and has plenty of ATMs. However, depending on your needs, it may not matter where the bank is located if they have online banking options.

(2) Products and services: What product and services are you looking for in a bank?  As an individual or business, you might choose your bank based on services and account types. If you are someone who travels frequently, you might need a bank where you can still use its services abroad.

(3) Fees are not fun. You might want to look into a bank that has little to no fees because it can add up in the long run.

(4) If you are thinking of getting a loan or have had poor financial history, you might want to consider a bank that is second chance friendly and is willing to work with those with poor financial history.

(5) FDIC, is a government insurance corporation that formed after the Great Depression as a way to insure and secure banks. It is important to see if the bank you choose is an FDIC member. You can do this by searching the bank name on the FDIC Bank Find tool.

Reason 2: Before you bank black you should know black bank history

According to the Federal Reserve there are 156 minority-owned depository institutions of which 23 are black-owned. For a bank to be considered a minority institution, the FDIC says it either needs a minority board that serves black, Hispanic, Asian, or multi-racial communities or is majority-owned by one of those groups. Some other governing bodies, also include women as a minority-owned business. If you are looking to bank black you should look to see if the bank has a minority board that serves the black community or is majority owned by blacks.

When I was looking into black banks, I found an article by Lila Ammons, written in 1996, in which she wrote about the history of black banks in the United States from 1888 to 1992. Ammons splits black bank history into five phases, excluding the pre-civil war era.

Pre-civil war

Prior to enslavement in the United States, those brought over were well established merchants in their countries. When they came to the United States the spirit of trade and commerce did not end. Though there were laws forbidding business activity by slaves, there were those who still were able to create forms of commerce and trade, mostly in service areas.

Phase 1

1888 to 1928

In 1851, there was a meeting in which people thought it was important to own a bank.  They thought owning banks could help with savings in their communities and help those who wanted to start businesses. Though this meeting occurred in 1851, the first black-owned banks did not open until 1888. These banks were Savings Bank of the Grand Fountain United Order of True Reforms, in Richmond, Virginia and Capital Savings Bank in Washington, DC.  These banks stemmed from people involved in fraternal societies, organizations, and churches that were able to get enough money to start banks and other businesses in their communities.

These black banks were established to:

(1) Provide capital and credit for businesses

(2) Finance programs and projects led by the fraternal societies

(3) Provide general bank services that were not provided by non-minority banks

(4) Provide the security and confidence to participate in a post-emancipation society

(5) Serve as a place to get loans

Phase 2

1929 to 1953

Phase two was a period of little to no growth in the number of black owned banks. Most banks during this time lasted an average of nine years before failing. This time period was a difficult one in general because it comprised of WWII, the Great Depression, and many other financial and political shocks to the economy that made it difficult for banks to survive or open.

Phase 3

1954 to 1969

In the 1960s when there were economic development problems in urban black areas, there was the idea that banks could help attract customers that typically would not have been banking. Migration of blacks from the south to the north allowed for banks in those areas to do somewhat better. In comparison many of the southern banks closed because of the population decline.

In phase one the banks were investing money into real estate, fraternal societies, and projects that were going to serve the black community. However, the banks in phase three shifted to investing in US government bonds and portfolios.

During this time period legislation played a role in the black bank receiving support from the federal government. Because of integration, the market changed for black banks. Blacks were no longer ‘forced’ to use black banks because there were other options. Additionally, black banks had to think of ways to retain not only customers, but also employees.

Phase 4

1970 to 1979

This era was the best era for black banks in terms of number of new bank openings; 34 banks were created. The banks that were established continued to strengthen ties with the U.S. government and many bank total assets were linked to the U.S. government and bonds.

According Summers and Tucker’s 1976 study, there were three main reasons for the increase of minority banks during this time period:

(1) There was a growing interest in entrepreneurs owning commercial banks and the profits that would be gained from owning a bank. This was also during a time when minorities were improving their economic status in the country.

(2) Civil rights legislation that passed, made it feasible for individuals to obtain commercial banks. This was also a time when minority groups were gaining economic and political stature in the country.

(3) People were opening banks because it was believed that it could stimulate the economy in minority communities.

Phase 5

1980 to 1990s

During phase five, the number of new banks establishing slowed down. This was time period when black banks were attempting to find ways to attract other minorities to their banks and diversify their services.

Phase ? 

I am speculating, but if there was a follow up study on the evolution and history of black banks, it could be said that black banks have gone through two more phases. The first, like all banks would be the recession and post-recession time. The second, would be present day, because of the racial tensions and dissatisfaction in this country, there is a revived interest in banking black/minority.

Concluding thoughts

I think it is important to understand the foundations of a topic, which is why this part of the series focused on the role of banks, how to choose a bank, and the history of black banks. The next post will focus on what makes a successful black bank, what makes an unsuccessful black bank, and a complete list of current black owned banks and their ratings.

***Lisa-Marie 

 

Further reading

Ammons, L. (1996). The evolution of Black-owned banks in the United States between the 1880s and 1990s. Journal of Black Studies, 26(4), 467-489.

Bankrate. Bank Shopping: Here’s how to choose.

ING. The role of banks.

Ivestopedia. Banking.

Smart Asset. Four things to look for when choosing a bank.

Hashtags to follow: #BankBlack, #BankDifferent, #BuyBlack

 

Photo credit: Fabian Blank

COMMENTS

    • byAyanna
    • onAugust 15, 2016

    Thank you for doing this research. This is very informative and pushes me to think more about my banking.

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