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3 Ways Minority-Owned Banks can make a difference in America
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(image: http://www.imageafter.com/image.php?image=b17eva255.jpg&dl=1)3 Ways that Minority-owned Banks Can make a difference in America
by Spencer Tierney Senior Writer | Certificates of deposit ethics, ethical banking, bank deposit accounts Spencer Tierney is a consumer banker at NerdWallet. He has been writing about personal finance since 2013, with a particular focus on certificates of deposit and other banking-related subjects. He has had his work featured by The Washington Post, USA Today, The Associated Press and the Los Angeles Times, among others. He is based in Berkeley, California.
Updated December 11 2019, 2020
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One type of bank plays a significant role in generating more opportunities for economic growth for those of people of color.
From the Black point of view, a banks is not just "a space where you can make a deposit or take out a loan," says Kevin Cohee, Chairman and CEO of OneUnited Bank, one of the largest Black-owned institutions in the U.S. "That's just one aspect of what banks can be."
OneUnited Bank's 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, or what government agencies term minority depository institutions, have to have either most stockholders or the members of their boards of directors comprise persons of people of color. This is in contrast to the majority white boards of directors among the largest U.S. banks.
Minority-owned banks can open the doors to economic opportunity. We'll review of three ways that they can make a difference, and what could you do assist.
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1. The gap is closing for those who aren't banked
Checking and savings accounts are the two most common entry points for building a relationship with a bank however, around 7 million Americans do not have them. There's also an increase across racial and ethnic boundaries.
About 16 percent of Native American households, 14% of Black households and 12% of white Hispanic households don't possess bank accounts compared to 2.5 percent of white households, according to a 2019 Federal Deposit Insurance Corp. study of those who aren't banked.
Minority banks help in bridging this gap by providing greater numbers of people with low- or moderate-income communities than other banks, according to an annual FDIC review of minority-owned depository institutions or MDIs. For instance, the majority of the people that the typical Black-owned bank serves at 62% is African American, compared to the 6% of metro-area banks that are not MDIs in the report.
In addition, banking deserts or regions of the country where one must travel for miles to locate a bank, have historically been an issue for some races and ethnic groups, like Native Americans living on reservations.
"We collaborate with those who are typically out of banks] and they develop into long-term customers" says T.W. Shannon the chief executive officer of Chickasaw Community Bank, one of 17 Native American-owned banking institutions.
2. Growing wealth through home loans
The home is among the biggest contributors to wealth for many, however it is primarily a benefit for white Americans. Asian as well as Black borrowers made up about 6 and 7 percent of U.S. home purchases, in comparison to 60% made by white non-Hispanic borrowers as per a 2019 mortgage market report released by the Consumer Finance Protection Bureau. Native Americans accounted for less than 0.8% of home purchases.
Minority-owned banks provide larger home mortgages as well as small business loans to borrowers of color than banks from other regions offer, as shown in the FDIC report.
The case is the same for Chickasaw Community Bank, that is a means of making home loans for Native Americans. The bank also offers lease-to-own options, for example, in which the tribe acts as the lender by borrowing money from the bank, and a member of the tribe follows an affordable payment plan and increases their credit score. Eventually, the member owns their home.
"For our tribe which is that of the Chickasaw Nation, these are houses for people who had some credit issues in the past, but who now have a good stable income but might not be eligible to be eligible for any other loan program," Shannon says. "That's a niche market that too big-to-fail banks do not spend much time on."
3. Responding to business community needs in times of crisis
Small business loans are another priority for minority banks, and funding has gotten more dire due to the COVID-19 epidemic. Minority banks have granted more than 13,000 Paycheck Protection Program loans for the sum of $10.3 billion through August 2020, according to data provided by the Small Business Administration.
"We took on the small, hard loans and not the simple loans (to large corporations), and we did it not for the money , but to aid the people," Cohee says.
The majority of minority banks are community banks, which the FDIC defines as those that concentrate exclusively on conventional loans and core bank accounts and are not able to expand their geographic reach depending on the location. Community banks have more than stepped up their weight this year. While they account for only 15% of all bank loans they outperformed other banks in giving 30 percent of PPP loans in the context of the 2020 FDIC quarterly report, which ended in June. And these loans aid in protecting jobs.
"We saved over 1000 Oklahoma jobs by implementing this program," Shannon says of Chickasaw Community Bank. "One thousand jobs might not seem like much however in Oklahoma it's a huge deal."
He continues, "We were oftentimes calling the borrower to ensure that they were aware of these options and options for deferment aid were available. We were there for them even if they didn't realize we could be."
What can you do to assist minority banks
Minority-owned banks have a direct impact on the lives of many in underserved communities, but they are only 150, or about 3percent, of the 5,100 banks that operate in the U.S. Plus, they alone can't address systemic issues within the U.S. such as the inequality of wealth between racial groups that is where the average white family has eight times the amount of wealth as the average Black family, as per an annual Federal Reserve survey.
To support minority banks to help minority banks, you can deposit a small portion of your savings into a. ( ) Part of the business model of banks is to make use of money in checking and savings accounts to provide loans to small-scale businesses as well as homeowners. Some companies, such as Netflix for instance has begun to support Black banks.
Beyond banks, think about investing in businesses that focus on making a social impact, along with other .
Paraphrasing Eleanor Roosevelt, Cohee says, "We're all better off when we're all in better shape."
About the author: Spencer Tierney is a writer, and NerdWallet's expert on certificates of deposit. The work of Spencer Tierney has been highlighted by USA Today and the Los Angeles Times.
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