Wall St. and Business Wednesdays: Black Banks In The Background

While the President Of The United States drives this nation to war; the Congress bickers over the federal budget; and the Black political establishment bargains with or defers to the Democratic Party on a variety of fronts; the Black economy remains in shambles.

The Black unemployment rate is double the national rate; the Black teenage unemployment rate remains steady, above 30% (after almost touching 40%); and the Black publicly-traded firms continue to plummet in market capitalization, several of them languishing as penny stocks.

In the backdrop of all of this, possibly the most important sector of the Black economy continues to struggle, with its condition relatively unmentioned by Black leaders and unnoticed by the Black masses. That would be the nation's Black banks to which we are making reference.

Last century at nearly this exact time (1911), there were 11 Black banks in the state of Mississippi. Today there is only one "minority-owned" bank in the state and that bank - First American Bank - just last week announced its intention to merge with Liberty Bank and Trust Co., one of the nation's ten largest Black-owned banks, based in Louisiana. First American opened for business in 1993 with only $9.5 million in assets, and $7.5 million of that came from First Commerce, a black-owned savings and loan institution. First American was faced with a potential take-over by the Federal Deposit Insurance Company (FDIC), if it did not merge with another bank. The Black-owned Liberty Bank, its suitor, has close to $230 million total assets with 10 branches and 22 ATMs in the cities of New Orleans and Baton Rouge. Instead of being able to accumulate and intermediate the dollars of millions of Blacks in the south, living in Mississippi and Louisiana, these two banks struggle with a relatively small asset base that limits their influence and ability to leverage capital in depressed Black rural and urban America.

We leave that merger of necessity in the South to look at one of opportunity in the West, where the largest Black-owned Bank in the country was created when One United Bank merged with the Los Angeles-area Family Savings Bank. One United Bank, now comprised of Boston Bank of Commerce, Peoples Bank of Commerce in Miami, Founders Bank of Commerce in Los Angeles with Family Savings Bank, has $500 million in total assets.

However, the challenges of the Black economy remain.

Kevin Cohee, Chairman & CEO of One United Bank, on the date of the announced merger stated, "Despite our progress, we still see a proliferation of check cashing outlets in inner city communities, while nearly one-third of the residents do not have bank accounts. We believe all customers, regardless of their account balances, need and deserve affordable access to capital to achieve financial security. Our mission is to meet that need."

It indeed is a laudable mission and a daunting task.

Yesterday, One United Bank's Senior Counsel, Robert Patrick Cooper, spoke to BlackElectorate.com about his bank's mission and function in the context of Black banking history in America. "We really are just now seeing the fulfillment and outgrowth of what W.E.B. DuBois, Booker T. Washington and Marcus Garvey spoke of in terms of 'garnering one's economic potential'. There have really been two principal types of Black banks in this country - those that were established or existed during the Jim Crow era in history, and a second group that come out of the modern era of civil rights. One United is in that second group, having begun in the late 1960s. We are now in a position to realize the vision for Black economic potential that was articulated over 100 years ago by the great Black leaders of that time. We have combined four institutions in three cities (Miami, Los Angeles and Boston) and are now able to take advantage of economies of scale and marry managerial expertise with capital. And we take our role as the largest African-American instituion in the country seriously because we understand that it is vital that an indigenous source of capital be available in economically depressed areas."

Mr. Cooper is correct.

A recent study, "Do Lenders Discriminate Against Low-Income Borrowers?" published in The Review Of Black Political Economy/Spring 2001 and authored by Harold A. Black, Breck L. Robinson and Robert L. Schweitzer, demonstrated (contrary to a widely-held belief spread by two prior studies) that Black-owned banks are more likely to accept Black loan applicants than White-owned institutions. Now more than ever, as liquidity is drying up throughout the American economy and capital is increasingly scarce for entrepreneurs, the Black community could benefit from an increase in "indigenous" sources of capital for community development and entrepreneurial activity.

Mr. Cooper further explained, "Without a bank, Black communities will continue to excel at consuming but not saving, producing and investing. That is why we offer unique products and services that are aimed at overcoming this reality where as many as one-third of Black people in inner-cities and rural areas do not have bank accounts."

The reality is that what Mr. Cooper describes is one of the greatest legacies of slavery, discrimination and the lack of a do-for-self mentality that have hindered Black America. For all of the government spending programs offered by Democrats and rugged individual approach to capitalism espoused by Republicans, it won't be until the Black community begins to control more of the process of financial intermediation that it will realize full propserity. No political theory, ideology or program to fight poverty or foster economic growth will make long-term progress or have permanence without the proliferation of Black institutions of financial intermediation. To varying degrees, Booker T. Washington, Marcus Garvey and the Honorable Elijah Muhammad all recognized this - that the Black community could not achieve economic growth beyond a certain level, until it increased its ratio of financial capital to labor. Black Banks are the linchpin of that effort.

Instead of getting caught up in a monorail or narrow and limited partisan debate regarding war, tax cuts, and budget deficits, Blacks would be wise to keep their independent third eye on the condition of their "indigenous" institutions and consider how their community needs, economic condition, and political interests can be advanced by an increase in the quality and quantity of Black banks.

Our economic survival may one day soon depend upon it.

Cedric Muhammad

Wednesday, February 12, 2003