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3 Ways Minority-Owned Banks Make a Difference in America
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3 Ways Minority-owned banks can make a difference in America
By Spencer Tierney Senior Writer | Certificates of Deposit ethics, ethical banking, bank deposit accounts Spencer Tierney is a consumer banker at NerdWallet. He has been writing about personal finance since 2013, with a particular focus on deposit certificates and other topics related to banking. The work he has written for him was covered in The Washington Post, USA Today, The Associated Press and the Los Angeles Times, among other publications. He is based in Berkeley, California.
Dec 11, 2020
Written by Carolyn Kimball Assigning Editor – Banking | Los Angeles Times, San Jose Mercury News Carolyn has been employed in newsrooms across the across the country as a reporter as well as an editor. Her interests include personal finance, sci-fi books and ridiculous Broadway musicals.
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A particular type of bank has an an outsized role in creating more economic opportunity for people of color.
From a Black leadership perspective, a bank is more than “a space where you can drop off a deposit or obtain an loan,” says Kevin Cohee the CEO and chairman of OneUnited Bank, one of the biggest Black-owned institutions within the U.S. “That’s just an initial step.”
OneUnited Bank’s initial loan within the Paycheck Protection Program, part of the federal response to the COVID-19 disease, “was to a single mother of seven who drove for Uber,” Cohee says.
Minority-owned banks, also known as the ones that government agencies refer to as depository institutions of minorities, have to have either most stockholders or members of their board of directors who are people of ethnicity. This is in contrast to the majority of white board of directors of the biggest U.S. banks.
Minority-owned banks provide opportunities in the economy. Here’s a look at three ways they make an impact, and how is your role to assist.
>> WHERE TO find one?
1. The gap is closing for the unbanked
Savings and checking accounts are the two most common entry points for building an association with a bank However, about 7 million Americans lack them. There’s also the trend of racial as well as ethnic boundaries.
Around 16 percent of Native American households, 14% of Black households and 12% from non-white Hispanic households don’t possess bank accounts compared to 2.5% for white families, according to a 2019 Federal Deposit Insurance Corp. study of those who aren’t banked.
Minority banks are able to fill the gap by serving more low- and moderate-income areas compared to other banks, according to the 2019 FDIC report on minority depository institutions, or MDIs. For example, most of the population banks that are owned by Blacks of 62% comprises African American, compared to 6percent for metropolitan banks that aren’t MDIs in the report.
In addition, banking deserts or areas in the United States where you must travel for miles to locate banks, have traditionally been a problem for certain races and ethnic groups, like Native Americans living on reservations.
“We work with people who are typically out of banks], and they are loyal customers,” says T.W. Shannon, CEO of Chickasaw Community Bank, one of 17 Native American-owned banks.
2. Growing wealth through home loans
The home is among the biggest contributors to wealth for many, but it’s mainly for white Americans. Asian as well as Black borrowers made around 6 and 7 percent in U.S. home purchases, as opposed to 60% by white non-Hispanic borrowers in a report on the market for mortgages from the Consumer Finance Protection Bureau. Native Americans accounted for less than 0.8 percent of all home purchases.
Minority-owned banks provide more home mortgages and business loans to borrowers of color than banks from other regions offer, according to an FDIC report.
For Chickasaw Community Bank, that means making home loans to Native Americans. The bank has lease-to-own plans like lease-to-own, for instance, in which the tribe acts as the lender using funds from the bank, while a tribal member follows an affordable repayment plan and builds their credit. In the end, the tribal member owns their own home.
“For our tribe, which is the Chickasaw Nation, these are houses for those who experienced credit problems in the past but have a steady income, but may not qualify in different loan programs,” Shannon says. “That’s a niche market that the big-to-fail national banks don’t spend long periods of time in.”
3. Responding to business community needs during a time of crisis
Small-business loans are another focus for banks of minority status, and funding has gotten more dire due to the COVID-19 epidemic. Minority banks have made more than 13,000 Paycheck Protection Program loans for the sum of $10.3 billion by August 2020, according to figures from the Small Business Administration.
“We took on the small, hard loans, not the easy loans [to major corporations] and we didn’t did it for money , but to aid the people in need,” Cohee says.
Most minority banks are also community banks that are what the FDIC defines as those that concentrate upon traditional loans and core bank accounts and have limited geographic scope based on location. Community banks surpassed their the weight this year. Although they only account for 15% of all bank loans they outperformed other banks in providing 30 percent of PPP loans in the context of the 2021 FDIC quarterly report that ended in June. Additionally, these loans aid in protecting jobs.
“We saved over 1,000 Oklahoma jobs through that programme,” Shannon says of Chickasaw Community Bank. “One thousand jobs might not sound like a lot however in Oklahoma this is a huge deal.”
He says, “We were oftentimes calling the borrower to make sure that they knew about these programs and deferment assistance options were available. We helped them, even though they didn’t know we could be.”
What you can do to help the banks of minorities
Minority-owned banks affect the lives of many people in communities that aren’t well-served, yet they make up less than 150, or about 3percent, from the 5100 bank institutions that operate in the U.S. Plus they aren’t able to address problems that are systemic in the U.S. for example, the wealth gap between racial groups, in which the typical white family has 8 times the wealth of a typical Black family, according to the 2019 Federal Reserve survey.
To support minority banks, you can put some of your savings into one. ( ) One aspect of the business model of banks is to use funds in checking and savings accounts to provide loans to small companies and homeowners. Certain companies, like Netflix for instance has begun to support Black banks.
Beyond banking, consider investing in companies that are focused on making a social impact and other .
Paraphrasing Eleanor Roosevelt, Cohee says, “We’re all better off when we’re all happier.”
About the author: Spencer Tierney is an expert in the field of certificates of deposit at NerdWallet. He has had his work featured on USA Today and the Los Angeles Times.
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