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Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.

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February 6, 2023

Driving a Resurgence in Black Banking

Editors' note: Today's post was written by guest blogger Megan Houck, senior business analyst in the Atlanta Fed's Research Division, in honor of Black History Month.

The number of Black-owned financial institutions in the United States had shrunk from more than 50 in the 1970s to just 20 by 2020, according to the National Black Bank Foundation (NBBF)Off-site link. Many were forced to shutter during the savings and loan crisis of the 1980s. Even more closedOff-site link during the Great Recession of the 2000s. What efforts are being made to ensure that Black-owned businesses receive equitable access to credit?

Historically, minority depository institutions (MDIs) formed to serve the needs of various ethnic populations denied credit by other institutions. The Small Business Administration Adobe PDF file formatOff-site link has noted that Black-owned businesses typically face higher interest rates and more loan denials. According to the 2021 Small Business Credit SurveyOff-site link, 16 percent of Black-owned firms received the full amount of the financing for which they applied, compared to 35 percent of White-owned firms. While both demographics saw their ability to secure a loan erode during the pandemic (these numbers were 26 and 54 percent, respectively, in 2019), the low number of approvals for Black-owned businesses in the current climate is concerning. Ensuring that MDIs have capital to offer loan seekers is one way to address this issue.

In addition to providing business credit, MDIs offer banking services to individuals in disadvantaged communities. When banks provide services to their own communities, they help alleviate many of the trust issues that practices like redlining and predatory fees created, practices that have led many people to avoid traditional banking.

Founded in Atlanta in 2020, the NBBF and its investment unit, the Black Bank Fund, aim to empower Black-owned financial providers and their communities. Since its creation, the NBBF has formed syndicates of Black-owned banks to underwrite two multi-million-dollar loans: a $35 million loan to the Atlanta Hawks in 2020 for an updated practice and sports medicine facility and a $25 million loan to Major League Soccer in 2022. These loans have helped participating financial institutions diversify risk and, with the resulting earnings, strengthen their capital position. In turn, these banks are better positioned to support the communities they serve, offering low-cost home and business loans to people and businesses who might otherwise not have access to them.

Robert James II is CEO of Carver Financial Corporation and a board member of NBBF. His bank, Carver State BankOff-site link, was the lead originator on the Hawks transaction. He toldOff-site link the National Bankers Association, "Black history, sports history, business history, and American history was made through the hard work, perseverance, expertise, and most of all, the spirit of collaboration of the Black banks." James also sits on the Atlanta Fed's Community Depository Institutions Advisory Council and provides our president and economists with insights into his experiences at the local level for his own bank and nationally with the NBBF.

In honor of Black History Month, we celebrate the spirit of collaboration.