Black Banks Need More Money To Stay Alive After Getting Hefty Cash-Infusions From Nation’s Largest Banks
Over a year after George Floyd’s murder and the economic crush from COVID-19, Black-owned banks report capital injections have allowed them to boost lending, beef-up staffing, and back communities amid pandemic-era unpredictability. Yet, even with the cash infusions, Black bankers contend that they need more investment to lessen racial inequality in financial services and fortify their longevity.
The most recent figure shows there are just 20 Black banks in America as of the second quarter of 2021, the Federal Deposit Insurance Corp. reports. That number is down from a sturdy 48 in 2001.
“Black banks are always going to have a need to raise more capital because we just don’t have access to public markets the way majority banks have,” said B. Doyle Mitchell, president and CEO at Washington D.C.-based Industrial Bank, Yahoo Finance reported. Industrial is on the BE 100s Banks list. “These investments will get us to a certain size and a certain increased level of profitability, but if you want to take an institution to the next level, you’re always going to need additional capital.”
JPMorgan Chase, Citigroup, Wells Fargo, and Bank of America made an estimated $300 million in equity commitments in minority-owned banks—mostly Black-owned firms, along with Hispanic-owned lenders— beginning June 2020. Morgan Stanley also committed $14.6 million in equity grants, per the National Bankers Association (NBA), and more investments have come from other institutions.
The investments were to help Black-owned lenders become stronger operationally and capital-wise. It was geared to help them achieve that by adding branches, implementing digital transformations to boost competitiveness, and increasing loan activity.
Black lenders will need even more long-term capital and regulatory changes, said Nicole Elam, president of the NBA, which represents minority-owned firms. While there’s no across-the-board dollar amount that would resolve underfunding at Black-owned banks, Elam said, she noted that such firms have an average asset size of less than $334 million, versus $4 billion for non-minority U.S. banks.
Further, Black banks are typically hit harder than white banks when economic downturns and unexpected events like COVID-19 occur.
While many of the funding infusions Black-owned banks gained over the past year were one-time investments, Optus Bank President and CEO Dominik Mjartan is confident the momentum will continue.
“If that injection of capital is not sustained, it could devastate Black businesses and Black banks and other mission-driven banks, because we’re trying to reverse 400 years of systemic disparities,” he said. “You cannot reverse those with even billions of dollars of capital that’s injected in Black banks and Black businesses in a span of 18 months.”