(Bloomberg Businessweek) -- Michael Render, the rapper and activist better known as Killer Mike, has been saying the same thing for years: America needs Black banks. But after George Floyd was killed by police in Minneapolis, Render is issuing another plea on behalf of the few Black-owned banks still standing. Once again, he’s urging fans to #BankBlack.
The campaign has worked—at least on the small, often precarious scale of Black-owned banks. The largest one, OneUnited Bank in Boston, quickly attracted $50 million of new deposits. Yet even with that additional money, OneUnited Bank is only an asterisk in the wider banking industry. JPMorgan Chase & Co. has more than 150 branches that are each bigger than all of OneUnited.
While Wall Street behemoths may be too big to fail, many Black-owned banks have proven too small to succeed. Two decades ago, 48 were open for business. Today, there are just 21. Since the 2008 financial crisis, as the big banks have gotten $2 trillion bigger, the combined assets of Black-owned banks have actually declined.
Amid the nation’s reckoning over race, a pivotal moment is arriving for Black-owned banks, in the form of the #BankBlack movement Render helped set in motion in 2016. The question is whether those lenders can push back against the national giants that dominate their industry and pull the financial levers in most Black communities. “The best way to punish a wicked system within capitalism is to use capital, your dollar,” to show that “systemic racism is bad for money, it’s bad for business,” says Render, one-half of the rap duo Run the Jewels.
Render and others are urging consumers and businesses to use their economic power to bolster Black-owned lenders, which serve communities that remain disproportionately underbanked. Making those banks stronger and pushing the industry’s giants to boost lending to African Americans can help begin to rectify an imbalance that has left Black families with an average net worth that is one-tenth that of White families.
There are signs that message is taking hold. OneUnited has added more than 40,000 customers since the beginning of the protests sparked by Floyd’s death. Netflix Inc. pledged to shift as much as $100 million to lenders that support the Black community. While that accounts for less than 2% of the entertainment giant’s cash, it’s a start.
The history of Black banks in the U.S. goes back to Freedman’s Savings and Trust Co., which was chartered by the U.S. government in 1865 to serve newly freed slaves who were denied by other lenders. It collapsed in 1874.
Since then, many financial institutions catering to Black communities have suffered the same fate, including City National Bank of New Jersey, which failed in November. In contrast, the “too big to fail” lenders that received government bailouts during the 2008 financial crisis came into the Covid-19 crisis riding high off record profits. Regulations put in place to avoid future bailouts in turn heaped more compliance costs on smaller lenders already facing thin margins.
Commercial banks in the U.S. topped $200 billion in collective profits for a second-straight year in 2019. None of the biggest Black-owned banks were able to crack $5 million. The shrinking of the Black banking industry is tied to structural racism, says Mehrsa Baradaran, a law professor at the University of California, Irvine. Black-owned banks are mostly based in low- and moderate-income communities, where they collect small deposits and have fewer opportunities to profit from making loans. Like many of their customers, the lenders lack the capital necessary to grow.
“The fact that Black banks are still serving these communities is huge, and so they can use all the help that they can get,” says Baradaran, whose book The Color of Money influenced Netflix’s move. The firms provide a crucial alternative to payday lenders that charge high rates and fees, she says, and a boost in low-cost deposits could further that effort.
In mainstream banking, African Americans still have less access to credit and other banking services as legacies of slavery and segregation. Unfair practices such as redlining, which made it difficult for Black people to get mortgages in the U.S. for decades, and the subprime crisis have “clobbered” Black communities and worsened the racial wealth gap, Baradaran says.
The Office of the Comptroller of the Currency convened a roundtable last month to promote financial inclusion, comprising representatives from minority lenders and nonprofits, as well as Citigroup Inc. Chief Executive Officer Michael Corbat and JPMorgan Co-President Gordon Smith.
The #BankBlack movement offers a partial remedy, calling on Americans to use their spending power to create social and economic change. Killer Mike is one of its biggest advocates. Comedian Tiffany Haddish is on board, and so are other entertainers, athletes, and community leaders. Kevin Cohee, CEO of OneUnited Bank, urges everyone—not just Black people—to join in.
“Are you on the side of being progressive, are you on the side of justice for all, are you on the side of equal treatment for everyone?” says Cohee. “Or are you not?” He hopes prospective customers will give his firm a chance, even if they only use it for their secondary bank accounts to start.
Render points to his single Ju$t, featuring Pharrell Williams and Zack de la Rocha from Rage Against the Machine. The song is about not losing one’s humanity in the pursuit of riches. “Wall Street is connected to any Black street in America—and if we don’t look at it that way, then this country continues to be a giant that’s hobbling along on a broken ankle,” Render says. “If the Black community is strong economically, the greater community is stronger.” —With Jennifer Surane
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