Importance of Black-Owned Banks

There continues to be a racial wealth gap in the United States, and access to traditional banks is limited in many majority-Black communities. The importance of Black-owned banks lies in their abilities to provide access to banking services for underserved communities.

"Even though we have federal fair lending and anti-discrimination laws, Black people still suffer from racial discrimination in the banking sector," says Robert E. James, II, chairman of the National Bankers Association, a trade organization and advocacy voice for the nation's minority banks. Black-owned banks and credit unions can be "financial anchors for communities that have been historically deprived equal access to credit, capital, and even basic financial services," says James.

Without access to traditional financial institutions, many Americans turn to high-interest payday loans or pawn shops for access to capital. Lenders often allow people to use alternative forms of credit if they have a poor or low credit score so they can obtain the loan. However, high interest rates and additional fees can make these high-interest loans harder to pay off on time.

According to the Consumer Financial Protection Bureau, many people are unable to pay off these loans and end up having to either get another loan or roll over their loan for another period of time, which adds further fees. 

Black-owned banks in Black communities can offer access to FDIC-insured checking and savings accounts, financial literacy programs, reasonable loans, and more. 

Decline of Black-Owned Banks

Like their non-minority peers, many Black-owned banks suffered during the Great Depression, though the decline of Black-owned banks was more severe because of their locations in lower-income communities hit hard by economic decline. There was a resurgence in Black banking in the 1960s and 1970s, but the industry was again struck by economic decline in the 1980s and during the Great Recession in 2008.

As of December 2024, the 23 Black-owned banks tracked by the FDIC (which insures banks). It's a small percentage of the total industry, but a percentage nonetheless. 

"The No. 1 reason for the sharp decline in Black banks has been lack of access to capital," James tells Business Insider. "Some of that has to do with small scale, being privately held, and the like. Also, our relative small scale has meant that our banks haven't been able to achieve the economies of other, larger banks, hampering our opportunities to grow and expand." 

Banks can raise capital by providing a variety of services and products, like loans or bank accounts, and imposing fees. Since Black-owned banks primarily serve minority communities, these institutions aren't able to offer the same variety of products and services as national banks, and as a result, have more limited opportunities for access to capital.