In an interview with the Washington Post, another pastor analogized the predicament to the biblical parable of the ungrateful servant. The story concerns a servant whose debt is mercifully forgiven by his creditor, a powerful king. This servant, having just been forgiven, turns around and sends his own debtor to prison for not paying him. The king then severely punishes the servant for his ingratitude. In the analogy, OneUnited was the ungrateful servant who, having received bailout funds from the king (or here the more powerful Treasury Department), had turned around to cruelly foreclose on the nation’s oldest black church. “We forgave the banks and bailed them out, and now they’re coming after the little borrower," said Pastor Ryan Bell.159 But the bailout was not quite a biblical wiping out of debt. The bank still had to pay back the federal government, and it was struggling to do so while facing heat for having received possibly “unethical” and certainly unearned “special treatment.”160
The perception was that not only was the bank acting immorally, but it was going against its own mission. Black City Councilor Ayanna Pressley said in a statement, “I am shocked that OneUnited, which claims to be fulfilling the civil rights dream by investing in urban areas, would treat the foreclosure of one of Boston’s most historic black churches as simply the cost of doing business.” She called the bank’s apparent unwillingness to restructure the loan “sadly ironic.” Pressley quipped, “Apparently, OneUnited’s commitment to urban communities only lasted until their $12 million check from the federal government cleared.”161
What is sadly ironic is that the bank was being blamed for its very commitment to the community. If the bank had not been committed to “fulfilling the civil rights dream,” it would not have lent money to the black church or drawn nearly as much criticism as it did when it decided to foreclose on the loan. The black community expected its black bank to save its black church. And because it couldn’t or wouldn’t, the bank, like many black banks and businesses before it, was seen as a traitor. Indeed, the Boston Globe asked pointedly, “What purpose can a minority institution serve when its own community is turning against it?”162
In fact, one of the purposes of black banks is to lend to black churches. Broadway Federal Bank, another of the pillars of the black banking sector, explained in its 2011 public disclosures that “[o]rigi-nating loans secured by church properties is a market niche in which we have been active since our inception.” Like most black-owned banks, roughly 25 percent of its loans went to black churches. “We believe that the importance of church organizations in the social and economic structure of the communities we serve makes church lending an important aspect of our community orienta-tion.”163 Jim Willis of M&F explained that his bank had been lending to black churches for over 150 years, and that in 2016 the bank had over $175 million in church loans. In fact, 55 percent of all of the bank’s loans were to black churches. But these loans present specific problems for black bankers.164
Broadway Federal suffered so much in losses on its church loans that in 2011 federal regulators labeled the bank as “troubled” and barred it from issuing any more church loans. The bank admitted that its loan losses “raise substantial doubt about the company’s ability to continue as a going concern." The bank had seven church loans in default, but when it tried to foreclose on properties held as collateral, they faced a protest by a coalition of black churches.165
The unrelenting financial depression that hit the black community infected the churches too, linking the fates of the black church and the black bank together, sometimes uncomfortably. Often a preacher advises his parishioners to deposit funds at a black bank. Martin Luther King did this. Black churches in turn borrow money from black banks. These loans, which are meant to further the goals of each institution and of the community, can nevertheless put the bank and the church at cross purposes. The bank needs to foreclose on a loan if it is to remain profitable, and the church usually asks for mercy instead of the cold justice of debt collection that is one of the bank’s core duties. Mercy can come in the form of a loan modification, which can save a church from bankruptcy, but that comes at a cost to the bank. The bank must sacrifice its own profits under a modification. Black banks that are already operating with a sliver of a profit margin may not be able to afford the mercy.166
In interviews, black bankers explained that they try to offer modifications to black churches whenever possible. Jim Sillis of M&F recounted that in 108 years of lending to black churches, the bank had seen only two failures because the bank always tried to work with the church first. Other mainstream banks are not so merciful. Bankruptcy law expert Pamela Foohey’s research revealed that black churches made up around 75 percent of bankrupt congregations over the last decade. This number is astonishing because black churches represent only 21 percent of churches nation-wide.167 Foohey uncovered a stunning case of discrimination by creditors. Lenders not only charged black churches more for credit, but disproportionately denied their loan modification requests, pushing these churches toward bankruptcy. Foohey rejected other possibilities that might account for the disparity, such as type of denomination, location, financial resources, management structure, financial decisions, or views on bankruptcy. This finding corroborates empirical research showing that black borrowers are also steered toward more costly Chapter 13 bankruptcy than the more borrower-friendly Chapter 7.168
Indeed, the demise of black banks mirrors the fall of the other pillars of the black community, including the black press, historically black colleges and universities (HBCUs), and black churches. Five HBCUs have closed over the past twenty years. In the 1970s, HBCUs educated 75 to 85 percent of the black population; today only 9 percent of blacks attend them. Black newspapers have all but collapsed, whereas they were once the “primary means of group expression," and “the strongest, most influential institution among blacks was its crusading press."169 On the one hand, this could be seen as a sign of racial progress because blacks are being included in historically white spaces. Black institutions are no longer needed, like black water fountains. On the other hand, the country remains racially divided, especially with regard to subterranean economic forces. While the black community is legally entitled to entry at any college, bank, or neighborhood, these institutions remain practically out of reach for many in the black community, who simply cannot afford to pay the entry fee.
Moreover, unlike other black institutions, black banks have held the additional promise of controlling and multiplying the black dollar. Policymakers have built an entire framework to support black banks based on this premise, and community groups continue to advocate for the industry. Yet after hundreds of years of trying to enrich their customers, black banks are still serving customers with low incomes and “very limited asset holdings," according to a Boston Federal Reserve study.170 The areas served by black-owned banks still suffer from “deep poverty," meaning that the majority of residents live below the poverty line. Black banks are actively engaged in closing these gaps, or at least drawing attention to them. Black banks were created to bridge the wealth gap, but they are dying before the goal has been achieved, before the black community has gotten safely to the other side.
The industry is still not strong enough to be a source of strength for the community it serves. “They have survived everything, including world wars and Jim Crow, but this has been one of the most difficult periods of all," said NBA President Michael Grant. However, if the future is anything like the past, the black banking industry will likely bounce back from this seemingly inevitable doom. The industry, like the community it serves, has rebounded many times and continues to find hope against the odds. The NBA president remained resolute in 2016 despite widespread failure. “Doom and gloom? No, and hell no,” he said. “It’s resolve, it’s ‘we are more determined than ever to preserve these banks.’ ”171 Black bankers and advocates claim that black banks are needed now more than ever because these are institutions of last resort.172 Black banking advocate Michael Cunningham explained why bl
ack banks have become even more appealing after the financial crisis: “the conclusion I draw is that you can’t rely on the financial system itself to protect your interests. Now that’s a lesson that everybody learned, but it’s especially relevant for African-Americans. Nobody’s going to protect you but you. And that’s justification, rationalization enough for the creation, maintenance, expansion of black-owned banks.”173 Black banks still promise and offer refuge from exploitation.
An interesting turn of events occurred in 2016. Lack of trust in the banking industry, coupled with an uptick in racial violence, led to a revival of black banking, or #BankBlack, as an expression of protest. Rapper Killer Mike was the most forthright advocate: “We don’t have to burn our city down,” he said. “But what we can do is go to your banks tomorrow. . . . And you can say ‘Until you as a corporation start to speak on our behalf, I want all my money. And I’m taking all my money to Citizen’s Trust.’ . . . What we’re gonna do is start to divert money away from the system. . . . I ain’t saying march, hold hands, speech. . . . I’m saying take your money out of this dog’s hands. Out of their paws. Take your money. . . . Don’t allow a dollar of your money to leave your community again until these dogs that ask for your vote, ask for your money, come begging for you to get back into their economic system. Don’t you spend a dollar for a dog who don’t speak up for you.”174
In February 2016, Killer Mike put his money in Citizens Trust Bank in Atlanta. He was joined by Usher and Jermaine Dupri, and the well-publicized event kicked off Black History Month and spurred a national movement. Other celebrities including Solange Knowles, Jesse Williams, Alicia Keys, and Queen Latifa all endorsed the #BankBlack movement.175 The movement was dubbed Black Money Matters, in sync with the national Black Lives Matter movement. As the Black Lives Matter movement expanded beyond protests over police shootings, the organization led a renewed focus on black businesses with a newly formed coalition called Backing Black Business. Its website urged the black community to support black business, invoking the words of both Malcolm X and Martin Luther King.176 American Banker reported that executives at the top black-owned banks in the country all reported a huge surge in deposits. Thomas McLaurin, chief operating officer of Industrial Bank, remarked, “I’ve been in banking since 1989 and I’ve never experienced anything like this."177
These deposits have breathed life into a dying industry. OneUnited had just announced plans to close two California branches when the Black Money Matters drive brought in $3 million in deposits in 2016. “We’ve seen a big influx of applications online, and the lines have been out the door," said the bank president Teri Williams. “We didn’t see this coming." Carver also attracted $2.4 million in deposits after having reported a loss in 2015. A Carver representative explained, “We attribute this growth to the deep relationships we have built with our customers and community partners at a time when messages of social justice, community, and diversity have taken on renewed importance." This movement is in the spirit of Garvey, Carter Woodson, Malcolm X, Dr. King, and others. In the face of discrimination and powerlessness, these leaders, now joined by a new movement, have urged their community toward protest through control of their dollars. When the climate is hostile, what can a community do but resort to self-help and protest? But can black banks offer effective protest or self-help? If history is any guide, the answer is, unfortunately, no. Or at least, not yet.178
Epilogue
A history of racism institutionalized through slavery, sharecropping, Jim Crow, white affirmative action, redlining, job discrimination, and white flight created self-reinforcing cycles of segregation and poverty. These institutions were often violent, extractive, and openly condoned, but their lingering effects are quiet, subtle, and hard to detect. They are no less destructive for that. But because they operate under the surface and on complicated bank balance sheets, they have been misunderstood, and this misunderstanding has caused perverse social policies. Instead of recognizing that white-run institutions have been complicit in and even benefited from black America’s poverty, the state has repeatedly placed the burden of closing the wealth gap on the black community itself.
Yet the history of black banking remains a story of struggle rather than triumph. The dilemma these banks face in the twenty-first century mirrors almost exactly what plagued them in the nineteenth century. Black banks are hamstrung by small and volatile deposits. Their loans are smaller and riskier than other banks’. Their assets are pulled out of the community, either through overinvestment in government securities or through national pools of mortgages. The magic of banking is that banks can create money by lending, but the money multiplier is broken for black banks because they have traditionally operated in a segregated economy.
The clear message that emerges from the history of black banks is that relying on these banks to do the work of achieving wealth equality without changing the economic environment in which they operate is unfair, cynical, and fruitless. Insofar as there is segregation and widespread poverty in the black community, banks that exclusively serve this community cannot be successful. The black community needs banks to grow and prosper, but the banks cannot achieve that growth and prosperity alone. Self-help microfinance cannot overcome macro inequality and systemic racism. Policymakers have been placing the weight and responsibility of centuries of wealth inequality on these tiny economic engines, and the results have been failure and frustration. Banks reflect the economic conditions of a community; they cannot change them. Yet we continue to rely on black banks to control the black dollar, to empower the community, to sow prosperity. This is a fundamental misunderstanding of what banks do.
Although black banks are unable to fulfill the promise of prosperity in the climate of poverty and segregation, they are the only institutions focused on the particular economic problems facing the black community and so their preservation is essential. They know what it takes to overcome financial obstacles, and they are the only institutions focused solely on closing the wealth gap. They are a place of refuge, banks of last resort, and institutions committed to the community. Unlike the contract sellers, payday lenders, and subprime mortgage brokers, they are not motivated purely by profits at all costs. The fact that they often lend at a loss means that they are lending to institutions and people who would otherwise not get loans, including black churches and other pillars of the black community. The banks’ mixed mission of community-building and profitable lending has occasionally led to combustible situations, as demonstrated by the foreclosures on black church properties. Such conflicts have historically attracted the scorn of black socialist leaders who have derided black banks as exploiters of the black population. However, the dual mission of the black banks makes them at least half concerned about the community and sets them apart from the lenders whose sole mission has been profit-taking.
If policymakers are committed to closing the wealth gap, black bankers must be seated at the head of the table. The point is that they should not be the only ones in the room. Black bankers have a firsthand understanding of the headwinds affecting black prosperity. While black banks cannot close the wealth gap alone, their specialized focus and expertise must play a role in any plan to address this problem. The fact that black banks have not yet met their goal is not an indictment of them. Rather, it reflects an enduring ecosystem of economic forces that perpetuate black poverty and resist efforts to create black wealth.
A 2016 study glibly predicted that, based on the current racial wealth gap, it would take 228 years for blacks to have as much wealth as whites do today. The prediction is inaccurate on two dimensions.1 If nothing changes, no amount of time will close the wealth gap because of the self-perpetuating cycles of poverty and lack of wealth. However, heretofore untried strategies might close the wealth gap very quickly. In 1894, a London newspaper predicted that “in 50 years, every street in London will be buried under nine feet of manure." This dire outcome did not consider that horses would not be the primary mode of transportatio
n in fifty years and that the automobile, an invention that was right around the corner, would transform life. Once people are motivated to deal with the wealth gap, radical solutions may emerge. There is no reason to believe that the future is just more horse manure.
There have been major political and social roadblocks to dealing effectively with the wealth gap, and each of history’s potential reformers has faced them. The biggest roadblock is inherent in majoritarian democracy itself. If reform is seen as zero-sum, the institutional structure of American government resists any wealth transfer viewed as a benefit to a minority of the population. However, there is a way to overcome the resistance by convincing the majority that reforms aimed at a segment of the population will benefit the entire population. For example, passage of civil rights laws was made easier when policymakers became aware that communists and other foreign enemies were exploiting Jim Crow and using it in propaganda against the United States. When civil rights came to be seen as a matter of critical foreign policy import, it was actively pursued. To point this out is not to cast doubt on the sincerity of the individuals or groups pursuing reforms or to throw an overly cynical taint on monumental changes, but it is to acknowledge the reali ty of human nature and democratic governance. Then, as now, the public must be convinced that their own interests are aligned with the advancement of racial minorities or that they will not suffer when others are promoted.
Indeed, greater wealth equality will benefit not just the poor, but the entire society. Drastic inequality is a drag on economic growth and has pernicious effects on society such as eroding trust, increasing illness, and leading to excessive consumption.2 Chicago economist Richard McAdams found that “economic theory and empiricism suggests that material inequality increases crime, increases corruption, and, at some levels, decreases growth."3 Lifting people out of poverty can have trickle-up economic effects and raise all boats.4 Research conducted by prominent economists, including
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