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Why America Needs Black-Owned Banks

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Black-owned banks in the U.S. were once a financial haven for African-Americans at a time when discrimination in the industry was common. Today, these banks function as engines for economic revitalization in often-distressed communities. But their numbers are in decline, and some people are trying to change that.

In recent months, some black banks reported a rush of new customers after a video circulated on social media of a TV appearance by rapper Killer Mike in which he called on individuals to open savings accounts in black-owned institutions. The #BankBlack movement was credited with bringing $20 million in new deposits to OneUnited, says a representative for the black institution. It had total assets of about $646 million as of September, according to the latest data from the Federal Deposit Insurance Corp.

Justin Garrett Moore was among those who heeded the call after receiving multiple texts from friends about #BankBlack in July. He said he also was motivated by distressing news of racially charged killings that dominated national headlines. The Killer Mike video “surely directed my motivation to look into it more,” he says, “particularly with the overall climate with police violence [and] the Black Lives Matter movement.”

Feeling he had to act, the New York urban planner opened savings accounts at two banks, Liberty and OneUnited, that are majority-owned by African-Americans. He first withdrew $1,000 from his account at a national bank and deposited half in each account. Over a few months, he gradually transferred a total of about $12,000 to the black banks. He later closed his account at the national bank and started spending time urging others to join the #BankBlack campaign.

» JUMP AHEAD: NerdWallet’s list of black-owned banks

Why black-owned banks matter

Black-owned banks “have a human and historical connection to Reconstruction, when newly freed slaves had nowhere to go but these banks,” says Michael A. Grant, president of the National Bankers Association, a Washington, D.C.-based organization of minority- and women-owned banks.

In recent years, black-run banks have struggled financially. They took a bigger hit from the housing crisis than the banking industry at large, as communities they served suffered higher-than-average job losses and home foreclosure rates.

In 2007, prior to the recession, there were 41 banks with majority African-American ownership. There were 44 in 1986, the year Congress passed a law designating February as National Black History Month. Today, the number of black-owned banks has fallen to just 23 institutions.

At the same time, the need for these institutions has grown. African-Americans as a group are underserved by financial services. More than 53% of blacks are either unbanked or underbanked, meaning they supplement their bank account with alternatives such as check cashers. That’s nearly double the percentage of the population as a whole, according to the FDIC.

Black-owned banks provide needed access to services

The disproportionately high number of African-Americans who are disconnected from mainstream financial services is a target market for black-owned banks. Many of these consumers have no checking or savings accounts, and they often rely heavily on check cashers, pawn shops, payday lenders or other high-cost alternative financial providers.

Many banks run by African-Americans are in neighborhoods that other banks don’t serve, and the minority institutions provide access to safe and affordable bank accounts, mortgages and business loans.

Moore wants to support black-owned banks in part because of a 2011 experience of what he called “modern-day redlining,” when he tried to get a loan to purchase and restore a vacant inner-city home in Indiana. Though he had an excellent credit score and a good income, Moore says, the bank refused his application, and he believes that racial discrimination was the reason. “Multiple white people had purchased, financed and renovated homes in this neighborhood, and yet somehow I could not.”

OneUnited Bank, one of the largest black-owned banks, offers much-needed bank services including mortgages, second-chance checking for customers who have been denied an account in the past, secured credit cards for those working on rebuilding damaged credit, and education for first-time home buyers.

“To open a deposit account is only $10,” says Teri Williams, the bank’s president, “so it’s very affordable.”

» MORE: Find second-chance checking accounts across the U.S.

OneUnited is also an internet bank, offering better-than-average interest rates on savings and checking accounts. Its well-rated mobile apps are important in competing for African-American customers, who are more likely to use mobile banking, according to the Federal Reserve.

Black-owned banks support and stabilize communities

As community banks, black-owned institutions have strong relationships with the neighborhoods where their customers live. Part of OneUnited’s mission is to make customers feel welcome, rather than intimidated.

“The cities we serve are black and brown,” Williams says, “and on the income side, many are people who are struggling. We have people in their 50s and 60s who tell us they’ve never set foot in a bank. They didn’t feel welcome. They didn’t feel banking was for them.”

“They experienced when banks were redlining and not welcoming to them, because it happened during their lifetime,” she says, referring to the practice by financial institutions of mapping out neighborhoods in which they would not offer services like mortgages. Although redlining was outlawed by the Community Reinvestment Act of 1977, scars from that period still exist. Traditional banks “have a way of creating these huge physical locations that can be intimidating to someone who doesn’t have a lot of resources — is this place going to welcome my $100 paycheck or $50 savings account?” Williams says.

By providing financial services, credit and a warm welcome, Grant says black-owned banks help stabilize the communities they serve. “When people get a piece of the rock, guess what happens,” he says. “Crime rates in that community come down.”

Grant was upbeat about the recent movement in support of banks owned by African-Americans.

“You don’t have to put every penny in a black bank. Say you have a $5,000 CD at Wells Fargo. Why not take $3,000 and put it in a black bank? Say you’re a young businesswoman with a 700 credit score and you want a home equity loan to open up a business. Why not go to a black bank first? You’ll make the bank more profitable, and that bank can become an engine for growth in your community.”

If you want to find an black-owned bank, here’s the full list:

African-American-owned banks

There are 23 black-owned community banks in the U.S., according to September 2016 FDIC data, the most recent available from the minority depository institutions program, and according to NerdWallet reporting.

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BankLocation
Alamerica BankBirmingham, Alabama
Broadway Federal BankLos Angeles
Carver Federal SavingsNew York
Carver State BankSavannah, Georgia
Citizens Savings BankNashville, Tennessee
Citizens Trust BankAtlanta
City National BankNewark, New Jersey
Columbia Savings & Loan Milwaukee
Commonwealth National BankMobile, Alabama
First Independence BankDetroit
First State BankDanville, Virginia
Harbor Bank of MarylandBaltimore
Illinois Service FederalChicago
Industrial BankWashington
Liberty BankNew Orleans
Mechanics & Farmers BankDurham, North Carolina
Metro BankLouisville, Kentucky
OneUnited BankBoston
South Carolina Community BankColumbia, South Carolina
Tri-State Bank of MemphisMemphis, Tennessee
United Bank of PhiladelphiaPhiladelphia
Unity National Bank of HoustonHouston
Urban Partnership BankChicago

Jeanne Lee is a staff writer at NerdWallet, a personal finance website. Email: jlee@nerdwallet.com. Twitter: @jlee_jeanne.

Updated Feb. 13, 2017.