The Color of Money

by Mehrsa Baradaran

  In 1926, Binga’s bank, located in the center of the black belt, was the most expensive property in the district, valued at $120,000. He owned over $500,000 in other real estate as well. On the eve of the Great Depression, Jesse Binga, sixty-four years old and at the height of his success, began collecting capital to start a second bank. Bin-ga’s unparalleled success made him a storied leader in the black community, and so the funds flowed in. The 1929 stock market crash, however, shattered his plans. By the end of the year, Binga’s bank became the “canary in the coal mine” for bank failure in Chi-cago.24 His bank was the first in Chicago to fail during the Great Depression.25

  Binga used all means available to him to save his bank and his customers’ deposits, including lending the bank his own money. The balance sheets of Binga’s bank from 1929 and 1930 reveal that the bank held $800,000 of home loans in default.26 He reached out to the Chicago Clearinghouse for a short-term loan from the fund he had helped build, but the board rejected his request. One member of the clearinghouse l ater explained that during one meeting, the chairman had referred to Binga’s bank as “a little nigger bank that does not mean anything.”27 It was the first closure of a member bank of the Chicago Clearinghouse in twenty years. All the other banks that belonged to this clearinghouse were given aid and survived the Great Depression.28 W. E. B. Du Bois noted that the bankers’ association “could have saved the bank and saved it easily without loss or prospect of loss. Yet the Binga Bank was allowed to fail because owners and masters of the credit facilities of the nation did not care to save it. Binga was not the kind of man they wanted to succeed.”29 On July 31, 1930, Illinois bank auditors closed Binga’s bank, and his depositors lost most of their savings.30

  The bank’s failure erased the wealth of many members of Chicago’s black elite. Dempsey Travis, who went on to run his own mortgage company and who held Binga as a personal hero, describes a successful uncle who saved all of his money at Binga’s bank and who “became destitute with the turn of the examiner’s key in the front door of the bank." He died just a few years later, “broke and brokenhearted."31 No doubt the same fate befell many others in Chicago. Some black residents were angry at Binga and called him a “crook," while others were more forgiving and thought he was a “creative businessman who ended up taking too many risks." Still others claimed that he was “a victim of circumstances brought down by the white system, and that his mistake had been in overextending the bank by making too many first mortgages to blacks desperate to buy homes."32 If black bankers’ success had been celebrated as a source and symbol of racial pride and progress, their failures were felt as a failure of the entire community—a source of shame and shaken morale.

  The bank’s failure bankrupted Binga too, but that was the least of his problems. His wife filed for divorce and Binga was indicted for embezzlement of funds. The charge was that he had deposited the $39,000 that he had raised for his second bank into a personal account. Binga defended himself against the charge by explaining that state laws did not allow capital funds for a national bank to be held in a state bank. After a jury heard testimony from eighty witnesses, they could not reach a verdict. The state’s attorney immediately prepared for a second trial and this time won a conviction in November 1933. Binga was sent to prison. According to recorded history, this made Binga the only banker in the entire country who was sent to prison for financial crime during the Great Depression.33

  At his parole hearing eleven months later, the nation’s most famous attorney, Clarence Darrow, came to Binga’s defense. Darrow did so because “I have known Binga for thirty years and he is a man of fine character. He lost a fortune trying to keep his bank open." Even Darrow, however, could not secure Binga’s release, and he remained in prison. In 1938, 10,000 Chicago residents, including many who lost their deposits at Binga’s bank, signed a petition in support of his parole and he was finally released. In 1941, Governor Dwight Green issued a pardon. By then, Binga was sick and broke. He died in 1950. His bank remained closed until 1943 and was reopened as the Phoenix National Bank—no longer a black-owned bank.

  The Binga Bank was not without a rival in Chicago. The black belt district was so densely populated and so thoroughly segregated that its financial needs supported two of the most successful banks in the country. Anthony Overton founded the Douglass National Bank, named after the first black bank president, Frederick Douglass. The bank capital came from the profits of the successful Overton Hygienic Company. Anthony Overton, much like Madam C. K. Walker, earned his wealth by creating cosmetics and hair products for black women and then built on his success to start the Victory Life Insurance Company, the Chicago Bee newspaper, the Half Century magazine, and the bank.34 By 1920, Overton’s Hygienic Company was worth over a million dollars and sold more than 250 products.35

  Before the Great Depression, his bank had $2 million in assets, which made it the largest of any black-owned bank in the nation. It was also the only black bank that was chartered as a national bank and that became a member of the Federal Reserve after it was formed in 1913. In order to affiliate with the Federal Reserve, the bank had to meet certain capital requirements and undergo additional regulation, but membership came with added prestige and privileges.36 One white scholar wrote in 1926 that the Douglass bank “surrounded itself with the best possible safe-guards which American banking science has been able to evolve, and by so doing, has instilled ambition, courage and confidence in the hearts of countless Negroes throughout America."37 The Douglass bank failed along with Binga’s bank in 1930.38

  Remarkably, New York City had no black-owned banks during the entire golden era of black banking.39 The black population in New York was around 150,000 in 1920, slightly larger than Chicago’s 110,000 blacks, and it was the nation’s unrivaled capital of finance.40 If anything, New York’s Harlem was a more vibrant center of business activity than Chicago’s black belt.

  Why was New York, with its large, segregated, income-earning black population, less hospitable to black-owned banks than Chicago, Washington, or the cities of the South? It was not for lack of trying. In 1916, the New York Age lamented, “One of the urgent business needs of Harlem is a Negro bank. Several attempts have been made at the formation of one, but so far to no avail. In the meantime the financial affairs of the district are provided for by the Harlem branch of the Chelsea Exchange Bank."41 In 1920, the Sun and New York Herald reported that “the Wage Earners Bank, a rich corporation of Savannah, Ga., purchased a large plot of ground at the southwest corner of 135th Street and Seventh Avenue, where it will erect a large bank building,” but the bank never formed.42 Then in 1921, Charles H. Anderson attempted to start a bank in Harlem at 135th Street and Lenox Avenue, across the street from the large, white-owned Chelsea Bank.43 However, Anderson, who was treasurer of the National Negro Business League and owner of the largest fish and oyster business in Jacksonville, was nevertheless unable to open a bank.44

  There were profits to be made in taking deposits from the citizens of Harlem, and several white banks established branches there.45 It is possible that these white banks were adequately serving the black population and there was thus no market demand for a black bank. This is unlikely, however, as the black press continually trumpeted the need for black-owned banks and lamented the lack of credit in Harlem. In fact, the white-owned banks with branches in Harlem focused on deposit-taking as opposed to lending.46 The lack of bank credit for blacks in Harlem led many of its residents, especially new Caribbean immigrants, to form informal credit circles to lend to each other to facilitate businesses and home purchases.47 There was certainly a dire need for bank credit in Harlem.

  Another possible explanation for the dearth of black banks is that New York’s chartering laws were more stringent than those of other states. Prominent black banker Arnett Lindsay posited in 1926 that although would-be black banks made attempts to enter the Harlem market over the years, “the rigid bank requirements of New York State were never met by the many promoters w
ho essayed this role.”48 There is, however, much reason to doubt this theory. A review of the bank chartering codes for New York, Illinois, and Massachusetts during the years between 1910 and 1930 reveals that they imposed very similar capital and bonding requirements, but the state left it to the banking superintendent’s discretion to approve the banks and their boards. This discretion was more robust in New York and Illinois than in Massachusetts, meaning that the bank superintendent could for any reason deny a banking charter if he was not satisfied with the character of bank managers.49 On their face, the New York chartering laws were not more rigid, but the discretion held by the banking superintendent could have led to disparate enforcement.

  The most likely explanation of the paucity of black banks in Harlem is the one put forth by the black press at the time: the white banks already established in the area prevented black banks from getting charters. The New York Age reported in 1923 that the Chelsea Bank had used the discretionary bank chartering laws and its influence on New York’s banking regulators to prevent black bankers from obtaining a charter.50 The bank, fearing a loss of black depositors, allegedly persuaded the New York State Banking Commission to deny Charles Anderson’s charter request in 1921.51 Facing community backlash after these charges appeared in the press, the Chelsea Bank sought to placate depositors by hiring two black tellers.52

  The Chelsea Exchange Bank likely did not want to give up their near monopoly on black depositors in Harlem. The Chelsea Bank had opened its first branch in Harlem at 135th Street and Seventh Avenue in 1912, and the community welcomed its services. At the time, the New York Age reported with pride, “[q]uite a number of the leading Negro business men [of Harlem] are customers of this bank, and the ample facilities of the institution are always courteously and freely placed at their disposal by the capable manager."53 The paper reported that the bank treated African American depositors respectfully and courted both small and large depositors. The branch had many large depositors—businessmen with average monthly deposits of $75,000 to $100,000. “Running over the list of Negroes who are customers of this bank is like calling the roll of ‘Who’s Who’ in the business and professional ranks of our people in Harlem."54 By 1916, 85 percent of the bank’s depositors were individuals, and 14 percent were businesses.55 The Chelsea Exchange Bank of Harlem retained its monopoly on deposits well into the mid-1920s. “The nearest financial institution is at least ten blocks away, at 125th Street, and so the Chelsea Bank has the opportunity to control almost entirely the banking clientele of a community in which one race group alone numbers approximately 170,000 people."56 In 1924, the New York Age reported that the Chelsea Exchange Bank “serves more small depositors and small business establishments than any similar institution" in Harlem.57 Chelsea’s deposit base was almost entirely Harlem residents, but they had no black board members, just the two black tellers.58

  Although Chelsea Exchange Bank took all of Harlem’s deposits, it did not make loans to Harlem. One white bank manager observed that black customer accounts were “based on straight cash de-posits."59 By 1920, there were complaints of prejudice and objections to the bank’s refusal to extend credit to black customers:

  It has also been alleged that business men of the race have found it extremely difficult, if not impossible, to secure from the bank’s officials any credit consideration. Temporary loans, secured by the endorsement of reputable and financially responsible people, have been refused in many instances, it is reported, under circumstances which pointed strongly toward the color of the would-be borrower and endorsers as the bar to credit at this bank.60

  The Chelsea bank manager responded that the bank’s refusal to extend credit to African Americans was not due to prejudice, but rather to the bank’s strictly conservative policies.61 The bank said they did not advance loans to anyone “unless the applicant can show a satisfactory balance and business statement and has a generally good character." Of course, with so much discretion as to an applicant’s character, how could racism not be a factor in the loan denials?

  A white teller of the Chelsea Exchange Bank who went on to write a dissertation on black-owned banks in the 1930s explained that his bank received a “tremendous amount" of money from black customers. He also observed without apology that, “All of this money is transferred downtown to the home office where it is loaned to white customers.”62 He defended this practice as one that was properly followed by most banks because they wanted to ensure their loans were “one hundred per cent sound." According to him, safe loans could be made much more easily to their white customers because “the Negro is entirely untutored in the business world; he is historically not a business man."63 This idea that blacks were not ready for business or incapable of it due to lack of training or that, unlike immigrants, blacks were “not from an entrepreneurial culture" has had a long life despite much evidence to the contrary.64 George Bernard Shaw revealed the backward logic: “the haughty American nation . . . makes the Negro clean its boots, and then proves the moral and physical inferiority of the Negro by the fact that he is a shoeblack."65

  Not only were blacks unworthy of loans, but the white clerk also blamed fickle depositors for the instability of black banks, lamenting that if only these black depositors would allow their deposits to grow, the banks would not be so burdened. He reasoned that the wage earners would often take out their deposits during the Christmas season, moralizing that this was because they lacked proper perspective and self-control.66 While his institution was diverting the scant resources of Harlem downtown, he was blaming the “unlearned” and “emotional negro” for his own poverty and lack of resources. This moral indictment of the poor by institutions complicit in their poverty is a recurring theme. In fact, privileged observers often cast the rational behavior of the economically disenfranchised as a sign of moral inferiority that explains their poverty and simultaneously justifies apathy toward them.

  The Chelsea Bank’s most prominent competitor in Harlem was the Dunbar National Bank.67 Dunbar Bank was established in 1928 by John D. Rockefeller Jr. and was described at its opening by Time magazine as a significant addition to “the long list of gifts which [its founder] has made toward the betterment of Negroes.”68 The Dunbar Bank was organized along the same lines as the Freedmen’s Bank— it was basically a large depository created by white philanthropists for the purpose of teaching blacks about “thrift.”69 The managing director of the Dunbar National Bank stated in 1932 that the bank provided savings accounts to “help the Negro help himself.” The bank would not be lending on real estate, but would take deposits and invest them in government securities, a promise which they kept. Rockefeller still expected that it would be “a profitable venture.”70 Black banker Arnett Lindsay remarked that, although blacks were the “chief beneficiar[ies]” of the bank, “the promoters of the bank are receiving their due compensation, a fair return on their investments.”71

  The community embraced the bank. On the day of its opening, September 17, 1928, the New York Age reported that “more than 5,000 persons including a number of the most prominent Negro business men of the country” visited the bank.72 Other black banks and businesses, including Mechanics and Farmers Bank of Durham, the Victory Life Insurance Company of Chicago, and the Citizens and Southern Bank of Philadelphia, deposited funds into the Dunbar Bank.73 Dunbar’s management explained that they were not organized as “a colored or white bank, but to serve all the people of Harlem.”74 By 1932, the New York Age reported, “depositors are made up of both races, the employees are both white and colored.”75

  With its white management and black staff, the Dunbar National Bank was reported to be the “only interracial banking operation in the United States."76 The Crisis noted that the bank employed “Negroes as tellers, bookkeepers and clerks."77 In other words, not as management. The community protested and asked the bank to consider hiring black managers. Dunbar responded by hiring one black director, Roscoe C. Bruce.78 The Harlem newspaper Amsterdam News was not impressed, compla
ining that “The desire on the part of prominent and capable Negro businessmen of Harlem to have serving the community a bank with a white and colored board of directors has not been realized." A Dunbar Bank representative countered, condescendingly, “The Dunbar Bank is an experiment and we must move slowly in deciding upon our policies, and until we see the response of the representative Negro businessmen of Harlem to this effort to be of assistance to them, we have to delay consideration of appointing any of them as directors of the institution." The Harlem business community was at first promised a 50 percent stake in the available stock, but once the bank opened, Rockefeller retained 75 percent of the stock and refused to sell the remaining 25 percent to the community until he was “sure the bank would succeed." Even when the bank did succeed, Rockefeller never sold stock in the bank to the black community.79 Harlem felt betrayed by this decision, which sowed a suspicion that would resurface thirty years later when Jackie Robinson tried to convince Harlem to invest in his bank. The community suspected that Robinson’s bank was a front for another Rockefeller venture.

  Having avoided real estate lending, the Dunbar Bank sailed through the Great Depression and became one of the first banks to open after President Roosevelt’s 1933 bank holiday.80 The bank was affiliated with the Rockefeller-financed Dunbar Apartments, which— according to the New York City Landmarks Commission—was the first large cooperative residence built for blacks.81 The structure, constructed in 1926, was designed to provide blacks with a path toward property ownership through a cooperative. During the height of the Harlem Renaissance the apartments housed several famous black luminaries, including W. E. B. and Nina Du Bois. In 1936, Rockefeller foreclosed on the cooperatively owned building due to defaults in payments in the wake of the Great Depression.82 The Dunbar National Bank was liquidated in 1938 when Rockefeller decided, according to The Afro-American newspaper, that it was no longer profitable and “convenient for him to continue it."83