Nov 21, 2019

Minority-owned banks are disappearing


Illustration: Eniola Odetunde/Axios

Bank failures, mergers and closures have fueled a drop-off in the number of minority-owned banks.

Why it matters: The institutions seek to provide financial services to communities left behind and underserved by the mainstream banking sector.

What they're saying: "The perspectives and values of bank owners ... influence how institutions make decisions about bank leadership, strategy, new products and target markets," Beverly Cole, a member of the executive staff at the Office of the Comptroller of the Currency, which regulates some of these banks, told Congress on Wednesday.

Driving the news: Cole spoke at a hearing that, among other things, weighed legislation that would up federal government deposits and try to incentivize investment in minority banks, as American Banker reports.

The big picture: The entire banking industry has undergone a transformation since the financial crisis. Banks closed branches at the fastest clip in decades last year, per the WSJ.

  • "You're finding that larger institutions have ... moved out of some of the areas" served by minority-backed banks, Kenneth Kelly, CEO of Detroit-based First Independence Bank, which is minority-owned, tells Axios.
  • That, along with the shuttering of minority-backed banks, leaves fewer options for "financial services to low-to-moderate income and minority communities in urban, rural and suburban areas that are often economically distressed," says Rhonda Thomas-Whitley, vice president and regulatory counsel for ICBA, the industry's trade group.

By the numbers: The number of black-owned banks is at the lowest level in recent history, according to data from the Federal Deposit Insurance Corporation, a government agency that regulates banks.

  • There are 21 of those banks left — down from the recent peak of 48 before the financial crisis — following the failure of New Jersey's lone black-owned bank earlier this month.

Yes, but: Though the number of minority-backed banks is shrinking, their assets keep growing — though they're a small sliver of the entire U.S. banking industry's $17.5 trillion in assets.

  • Minority banks are formed to serve either Asian American, Hispanic American, African American or Native American communities.

When they shutter, more than three-fourths of the assets of the closed banks are distributed into other minority-backed banks, per the FDIC.

The bottom line: Minority-backed institutions have been more volatile compared with other types of banking institutions.

  • Those banks are about "half as likely as community banks to operate continuously," according to FDIC research.
  • They're also "two and a half times as likely to fail as all other banks."

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