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3 Ways Minority-Owned Banks Make a Difference in America
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3 Ways Minority-Owned Banks Make a Difference in America
by Spencer Tierney Senior Writer | Certificates of deposit, ethical banking, banking deposits Spencer Tierney is a consumer banking writer at NerdWallet. He has been writing about the personal financial sector since with a particular focus on certificates of deposit as well as other banking-related subjects. He has had his work highlighted in The Washington Post, USA Today, The Associated Press and the Los Angeles Times, among others. He is located in Berkeley, California.
Updated Dec 11, 2020
Edited by Carolyn Kimball Assigned Editor - Banking Los Angeles Times, San Jose Mercury News Carolyn has worked in newsrooms around the country as a reporter and editor. Her interests include personal finance, sci-fi fiction novels and groovy Broadway musicals.
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A particular type of bank has an an outsized role in creating greater economic opportunities for people of ethnicity.
From the Black perspective of leadership the banking institution is much more than "a place where someone can deposit a check or get an loan," says Kevin Cohee the president and CEO of OneUnited Bank, one of the biggest black-owned institutions within the U.S. "That's only one aspect of what banks can be."
OneUnited Bank's very first loan under the Paycheck Protection Program, part of the federal response to the COVID-19 pandemic, "was to a single mother of seven, who drove for Uber," Cohee says.
Minority-owned banks, also known as government agencies refer to as minority depository institutions, must have either most stockholders or the members of their boards of directors comprise persons of ethnicity. This is in contrast to the predominantly white boards of directors of the largest U.S. banks.
Minority-owned banks open doors to economic opportunity. Let's look at three ways that they can make a difference, and what is your role to assist.
>> WHERE DO I find one?
1. The gap is closing for the unbanked
Checking and savings accounts are the two most common entry points for building an association with a bank however, around 7 million Americans do not have these accounts, and there's a trend across racial and ethnic boundaries.
A little more than 16% from Native American households, 14 percent of Black households and 12% of white Hispanic households do not have bank accounts, as compared to 2.5% for white families, according to an annual Federal Deposit Insurance Corp. survey of the unbanked.
Minority banks can help bridge this gap by serving greater numbers of people with low- or moderate-income regions than other banks, according to the 2019 FDIC review of minority-owned depository institutions, or MDIs. For example, most of the people that the typical Black-owned bank serves at 62% is African American, compared to 6percent for metro-area banks that do not qualify as MDIs in the report.
Additionally, deserts in banking, or areas in the United States where you has to travel miles to locate a bank, have historically been a source of concern for certain races and ethnic groups, such as Native Americans living on reservations.
"We deal with customers who are usually out of bank systems], and they become loyal customers," states T.W. Shannon the chief executive officer of Chickasaw Community Bank, one of 17 Native American-owned banks.
2. Growing wealth through home loans
The home is among the most significant sources of wealth for many, but it primarily benefits white Americans. Asian or Black borrowers made around 6% and 7% of U.S. home purchases, as opposed to 60% made by white non-Hispanic borrowers in a mortgage market report from the Consumer Finance Protection Bureau. Native Americans accounted for less than 0.8% of home purchases.
Minority-owned banks offer more home mortgages and small business loans to people of color than other banks do, according to the FDIC report.
In the case of Chickasaw Community Bank, that involves tailoring home loans specifically for Native Americans. The bank has lease-to-own plans like lease-to-own, for instance, in which the tribe acts as the lender and borrows money from the bank while a tribal member follows a reasonable payment plan and improves their credit. Then, they own their home.
"For our tribe, which is the Chickasaw Nation, these are houses for people who faced credit issues in the past, but have a good stable income [yet still] might not qualify to be eligible for any different loan programmes," Shannon says. "That's a niche market that the big-to-fail national banks do not spend too much time on."
3. Responding to the needs of business communities in times of crisis
Small-business loans are another area of focus for banks of minority status, and their funding situation has become more difficult in the course of the COVID-19 pandemic. Minority banks have made more than 123,000 Paycheck Protection Program loans for an aggregate of $10.3 billion through August 2020, according to data from the Small Business Administration.
"We took on the small, hard loans, not the easy loans [to major corporations] We did it not to make money , but to aid the people in need," Cohee says.
Many minority banks are community banks, which are what the FDIC defines as banks that are focused exclusively on conventional loans and bank accounts that are core and have a limited geographical scope according to their location. Community banks have more than stepped up their capacity this year. Although they only account for 15% of all bank loans they outperformed other banks when it came to providing 30 percent of PPP loans in the context of a 2021 FDIC quarterly report that ended in June. These loans aid in protecting jobs.
"We saved over a thousand Oklahoma jobs through that program," Shannon says of Chickasaw Community Bank. "One thousand jobs might not sound like much, but in Oklahoma this is a huge deal."
He continues, "We were oftentimes calling the borrower to verify that they knew these programs and deferment assistance options were available. We were there for them even though they didn't know they could count on us."
What can you do to help minority banks
Minority-owned banks affect the lives of many in communities with limited access to banking services, but they account for less than 150, or about 3%, of the 5,100 banks that operate in the U.S. Plus, they aren't enough to address the systemic problems in the U.S. such as the disparity in wealth between races which means that the typical white family has eight times the amount of wealth as the average Black family, according to a 2019 Federal Reserve survey.
In order to help support banks that are minority to help minority banks, you can deposit a small portion of your savings into one. ( ) One aspect of banks' business model is using the money that sits in savings and checking accounts to make loans to small businesses and home buyers. Some companies, such as Netflix, for example has begun to support Black banks.
Beyond banking, think about investing in companies focused on making a social impact and other .
Paraphrasing Eleanor Roosevelt, Cohee says, "We're all better off when we're all happier."
Author bio Spencer Tierney is a writer, and NerdWallet's expert for certificates of deposit. The work of Spencer Tierney has been featured in USA Today and the Los Angeles Times.
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