Jul 1, 2020 - Economy

The myth of closing the racial wealth gap through Black-owned banks

Tuesday's news that Netflix would invest $100 million of its cash holdings in "financial institutions and organizations that directly support Black communities" sparked discussion about Black-owned financial institutions in the United States.

Why it matters: The company's $100 million investment helps illustrate why individual actions won't close the racial wealth gap.

By the numbers: As of the fourth quarter of 2019, Black-owned banks held assets totaling $5.2 billion, compared to $17.7 trillion in non-minority institutions held in community and non-community banks, according to data from the FDIC.

  • That comes out to 0.03% of the total assets.
  • Minority financial institutions in total hold $234 billion.

By comparison, JPMorgan Chase, the country's largest bank, holds $3.1 trillion in assets. The bank made a profit of $2.87 billion in the first quarter — more than half the total assets of all Black-owned banks in the United States.

  • And that profit total was down 69% from a year earlier.

The big picture: Politicians and others have long suggested that if more Black families and businesses used Black-owned banks it would help Black people overcome the massive racial wealth gap in the U.S.

  • However, a recent Brookings report shows Black-owned firms with paid employees generated just over $103 billion in revenue annually.

What it means: If every single Black-owned business put every single dollar of its revenue into Black-owned banks every year, after a decade Black-owned banks would have 6% of the total assets that banks led by white people had in the fourth quarter of 2019.

  • It would take just under 30 years of every dollar earned by all of the Black-owned businesses invested in Black-owned banks for their assets to surpass those held by JPMorgan Chase in the first quarter of this year.

The bottom line: Netflix didn't actually say it was putting its money into Black-owned banks.

Go deeper: The myth of closing the racial wealth gap through education

Go deeper