New fund to invest $250 million in Black-owned banks

Abu Mubarik Nov 12, 2020 at 10:00am

November 12, 2020 at 10:00 am | Money Moves, The Black Agenda

Abu Mubarik

Abu Mubarik

November 12, 2020 at 10:00 am | Money Moves, The Black Agenda

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African-Americans make up 13.2 percent of America’s population. However, out of the nearly 6,000 banks in operation, only 18 banks are owned by American-Americans, according to the FDIC. And only one, City First, manages assets in excess of $1 billion.

Undoubtedly, the undercapitalization of Black banks has severely restricted Black banks’ ability to compete and underwrite credit. When Black people apply for loans or mortgages to mainstream banks, they are often turndown and in cases where their credentials are comparable to those who get the loans, they do not receive comparable rates and services.

To support Black banks in making loans available to African-Americans, Black financial services and regulatory experts have formed the Black Bank Fund and National Black Bank Foundation to nurture Black-owned banks through a historic $250 million direct investment of tier 1 capital.

The Fund’s investment will allow Black banks to make $2.5 billion in new loans. The Foundation, a nonprofit, will simultaneously educate the public about the essential role these institutions provide through financial literacy and wealth-building programs for underbanked people of color.

“We have a century of data that shows #BlackBanksMatter, but their ability to extend credit to Black entrepreneurs and households has been stunted by undercapitalization,” said Ashley Bell, Black Bank Fund co-founder and partner at the global law firm Dentons. “The Black Bank Fund will urgently address the fundamental challenge preventing Black banks from scaling to serve our community: meaningful access to capital.”

The Black Bank Fund intends to purchase upwards of $250 million non-cumulative, non-voting, preferred stock in Black banks by 2025. The Fund’s stock purchase will immediately translate into tier 1 capital, which the banks can finally deploy to underserved borrowers.

“We’ve spent the last year speaking candidly with leaders of Black banks to understand the structural and specific challenges facing the sector, and each of them pointed to their comparatively small assets,” Brandon Comer, Black Bank Fund co-founder and Managing Partner of Comer Capital Group, said. “The Black Bank Fund and Foundation provide a holistic solution that addresses the banks’ ability to extend credit to Black borrowers meaningfully while fostering sustainability and growth.”

That lack of access to basic financial services has forced Black households to rely on costly alternatives like check-cashing services, payday loans, money orders, and prepaid credit cards. Over a financial lifetime, those fees can total upwards of $40,000, according to Black Bank Fund.

“Black families can’t build wealth through home equity and Black entrepreneurs can’t create jobs because they can’t access capital from their neighborhood bank,” City of St. Louis Treasurer Tishaura Jones, National Black Bank Foundation co-founder, said. “In cities like St. Louis, just like in New Orleans and Washington, DC, the work of uplifting Black banks is both urgent and vital.”

About Black Bank Fund and National Black Bank Foundation 

The Black Bank Fund and its parent nonprofit, the National Black Bank Foundation, were formed in 2020 to uplift Black-owned banks through strategic investment and sustainability initiatives. Working with corporate and philanthropic partners, the Fund and Foundation will respectively provide a financial shot in the arm to minority depository institutions and educate the public about the essential role these institutions provide through financial literacy and wealth-building programs for underserved people of color.

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