3 Ways Minority-owned Banks Help Make a Difference in America
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3 Ways Minority-Owned Banks make a difference in America
Written by Spencer Tierney Senior Writer | Certificates of deposit ethics, ethical banking, bank deposit accounts Spencer Tierney is a consumer banking writer for NerdWallet. He has covered the personal financial sector since, with a particular focus on certificates of deposit and other topics related to banking. His work has been highlighted on The Washington Post, USA Today, The Associated Press and the Los Angeles Times, among other publications. He is located in Berkeley, California.
Dec 11, 2020
Written by Carolyn Kimball Assigning Editor – Banking | Los Angeles Times, San Jose Mercury News Carolyn has been employed in newsrooms across the across the country as a reporter as well as an editor. Her interests encompass personal finance, Sci-Fi books and ridiculous Broadway musicals.
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A particular type of bank has an an outsized role in creating greater economic opportunities for people of people of color.
From a Black leadership perspective, a bank is more than “a space where you can deposit a check or obtain a loan,” says Kevin Cohee, CEO and chairman of OneUnited Bank, one of the largest black-owned institutions in the U.S. “That’s only an initial step.”
OneUnited Bank’s very first loan within the Paycheck Protection Program, part of the federal response to the COVID-19 disease, “was to a single mother of seven who drove Uber,” Cohee says.
Minority-owned banks, or those that are classified by government agencies as depository institutions of minorities, have to be able to have the majority of stockholders or the members of their boards of directors comprise people of ethnicity. This differs from the predominantly white board of directors of the largest U.S. banks.
Minority-owned banks open doors to opportunities for economic growth. Let’s look at three ways that they make the difference, and how you can do to make a difference.
>> WHERE TO FIND ONE:
1. Closing the gap for those who aren’t banked
Savings and checking accounts are two common ways to establish a relationship with a bank, but about 7 million Americans lack these accounts, and there’s an increase across racial and ethnic boundaries.
Around 16% in Native American households, 14 percent of Black households, and 12% of white Hispanic households do not hold bank accounts in contrast to 2.5 percentage for white families, as per the 2019 Federal Deposit Insurance Corp. survey on the unbanked.
Minority banks can help fill the gap by serving greater numbers of people with low and moderate income areas than other banks, as per a 2019 FDIC review of minority-owned depository institutions, or MDIs. In particular, the majority of the people that banks that are owned by Blacks at 62% comprises African American, compared to 6% for metropolitan-area banks that do not qualify as MDIs as per the report.
Furthermore, banking deserts or regions of the country where one must travel for miles to locate banks, have historically been a source of concern for certain races and ethnic groups, such as Native Americans living on reservations.
“We collaborate with those who are typically out of bank systems], and they become regular customers” states T.W. Shannon the CEO of Chickasaw Community Bank, one of the 17 Native American-owned banks.
2. Enhancing your wealth by taking home loans
Homeownership is one of the biggest contributors to wealth for many, but it primarily benefits white Americans. Asian or Black borrowers made up about 6 and 7 percent of U.S. home purchases, in comparison to 60% made by non-Hispanic white borrowers, according to a 2019 mortgage market report from 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 people of color than banks from other regions do, as per an FDIC report.
For Chickasaw Community Bank, that involves creating home loans specifically for Native Americans. The bank has lease-to-own plans such as where a tribe is the lender using funds from the bank, while the tribal member is on a repayment plan and builds their credit. Then, they own their home.
“For our tribe which is which is the Chickasaw Nation, these are houses for those who experienced credit problems in the past but have a stable and steady income [yet still] might not be eligible to be eligible for any different loan program,” Shannon says. “That’s an area that the big-to-fail national banks do not spend too much time on.”
3. Responding to business community needs during a time of crisis
Small business loans are another area of focus for banks of minority status, and funding has gotten more dire during the COVID-19 pandemic. Minority banks have made more than 123,000 Paycheck Protection Program loans for the sum of $10.3 billion as of August 2020, as per data obtained from the Small Business Administration.
“We took on the small, hard loans rather than the more straightforward loans (to large corporations), and we did it not for the cash, but to assist the people in need,” Cohee says.
The majority of minority banks are community banks, which are what the FDIC defines as banks that focus on traditional loans and bank accounts that are core and are not able to expand their geographic reach according to location. Community banks more than pulled their weight this year. While they account for only 15% of bank loans they outperformed other banks in offering 30% of PPP loans, based on the report from the 2020 FDIC quarterly report, which ended in June. Additionally, these loans can help safeguard jobs.
“We saved more than a thousand Oklahoma jobs by implementing this program,” Shannon says of Chickasaw Community Bank. “One thousand jobs might not seem like a lot but in Oklahoma it’s a huge deal.”
He continues, “We were oftentimes calling the borrower to make sure that they knew about these programs and deferment assistance options were available. We were there for them, even though they weren’t aware we could be.”
What you can do to help the banks of minorities
Minority-owned banks have a direct impact on the lives of many in under-served communities, yet they account for less than 150, or around three percent out of 5,100 banking institutions that operate in the U.S. Additionally, they alone can’t address fundamental issues that exist in the U.S. like the gap in wealth between races in which the typical white family has 8 times the wealth of the average Black family, according to a 2019 Federal Reserve survey.
In order to help support banks that are minority, you can put some of your savings in one. ( ) One aspect of banks’ business model is to make use of funds that are in their checking and savings accounts to make loans to small-scale businesses as well as home buyers. Certain companies, like Netflix, for example, have begun supporting Black banks.
Beyond banking, think about investing in companies that are focused on making a social impact and other .
The quote is from Eleanor Roosevelt, Cohee says, “We’re all better off when we’re all in better shape.”
About the author: Spencer Tierney is an expert in the field of certificates of deposit at NerdWallet. He has had his work published in USA Today and the Los Angeles Times.
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