A half-century ago, the federal government set out to attack the racial wealth gap by supporting Black-owned banks. Policy makers hoped the banks would lend to Black communities sidelined by the mainstream financial system.
But five decades of federal financial and regulatory support have failed to boost America’s Black-owned banks. The majority have disappeared under the burden of soured loans, bigger competitors created by mergers and financial downturns that hit small lenders hard. Fifteen years ago America had 36 Black-owned banks, government data show. Now there are 18.
And Black people still face obstacles to getting loans. Would-be borrowers in Black neighborhoods over the past decade have been less likely to have their home loans approved than borrowers in other neighborhoods, according to a Wall Street Journal analysis of federal data in the nine largest cities by raw Black population.
Those who do get home loans are likely to pay more than other borrowers on comparable loans. A FDIC survey found last year that 13.8% of Black households in America don’t have bank accounts at all, compared with 5.4% of the overall population. The survey also found that 72.5% of all U.S. households used bank credit last year, but just 52.5% of Black households.
Now a new generation of entrepreneurs, companies and regulators is trying a different strategy. They are promising to strengthen Black-owned banks by building up their capital with private investments and giving them new ways to earn money with hundreds of millions in big corporate deposits. Their hope is that this approach will ultimately improve Black communities’ access to capital.
