Whom Do Black-Owned Banks Serve?
Black-owned banks are vital sources of capital, employment, and training in low-income areas. They provide institutional leadership and jobs with career ladders to communities.
Much attention has been paid to the overall banking industry in the wake of the 2008 financial crisis but not much to black-owned banks (BOBs). What has been their approach to banking since 2008? What has been their role in communities?
Past literature focused on minority-owned banks' efficiency relative to other banks, with some authors finding insignificant differences, and others suggesting non minority-owned banks were more efficient. Later work showed that minority-owned banks, BOBs in particular, paid higher interest rates on certificates of deposit (CDs) than non minority-owned banks-using CD rate premiums to help insulate customers from the effects of the recession.
That is part of a pattern in which BOBs have been known to serve their neighborhoods as sources of credit and other support.
Black-Owned Banks Since 2008
To learn more about BOBs after the Great Recession and their role in communities, researchers at the University of Wisconsin, Whitewater, looked at bank data from 2000 and 2011. The list of BOBs and the zip codes for their main and branch offices in 2000 and 2011 come from Federal Reserve quarterly reports and the Federal Deposit Insurance Corporation (FDIC) list of Minority Depository Institutions. The FDIC also provided annual branch deposit data, which the research team measured as a percentage of all bank deposits within each zip code on June 30, 2000, and June 2011.
Race/ethnicity and poverty estimates were drawn from the Integrated Public Use Microdata Series (IPUMS), which was generated as part of Census 2000, and from 2009-2011 American Community Survey (ACS) data. Together the data provided a poverty indicator measured as a percentage of the official poverty level. (See "Characteristics of Black-Owned Banks.")
A comparison of 2011 and 2000 figures points to a general market trend toward bank consolidation. Although the number of BOBs declined from 51 to 33 (35.3 percent), the number of branches decreased only slightly (from 163 to 159, or 2.5 percent), and the number of unique Zip Codes served expanded (from 142 to 150, or 5.6 percent), suggesting that a smaller number of BOBs may have been capable of serving a larger number of customers. Growth in average deposits was dramatic: more than $10 million (40.9 percent) per office and slightly less than $180 million (159.8 percent) per bank.
Characteristics of Black-Owned Banks in the United States, 2011 and 2000
2011 2000 Number of banks 33 51 Number of main or branch offices 159 163 Number of unique Zip Codes served 150 142 Avg. deposits per office $35,967,000 $25,525,000 Avg. deposits per bank $291,562,000 $112,204,000
Source: Federal Reserve, FDIC.
Race and Ethnicity of Areas Served by Black-Owned Banks
National average Blackowned bank present in market Blackowned bank holds more than 5 % of deposits Blackowned bank holds more than 20% of deposits Percent black 2009-2011 12.2 49.1 52.7 61.7 2000 12.0 55.6 61.7 64.0 Percent nonwhite 2009-2011 36.3 70.1 75.2 84.6 2000 30.9 71.5 80.0 83.3
Source: FDIC, Federal Reserve, Missouri Census Data Center, "MABLE/Geocorr2K: Geographic Correspondence Engine with Census 2000 Geography," http://mcdc2.missouri.edu/websas/geocorr2k.html, Census 2000, and the 2009-2011 American Community Survey.
Race and Ethnicity
The percentage of African Americans in the national population rose slightly from 12.0 percent in 2000 to 12.2 percent in 2011. The percentage of African Americans in markets served by BOBs fell between 2000 and 2011. Nonetheless, the 2011 figures remain striking: the population in areas with any BOB is over three times more likely to be black than in the nation on average. That figure rises to more than five times the national average (61.7 percent) in areas where those banks hold more than 20 percent of deposits. Clearly BOBs tend to serve African American communities.
More broadly, the percent of nonwhites in the United States rose from 30.9 percent in 2000 to 36.3 percent in 2011. In areas with a BOB present, that figure jumps to over two-thirds (70.1 percent). In areas with BOBs holding more than 20 percent of deposits, over four-fifths (84.6 percent) of residents are nonwhite. Thus it can be argued that BOBs also tend to serve people of color who are not black. (See "Race and Ethnicity of Areas Served by Black-Owned Banks.")
Poverty in Areas Served by Black-Owned Banks
Deep poverty, for individuals in families reporting income under 50 percent of the federal poverty level, affected less than 10 percent of the nation as a whole in 2000 and 2011. But deep-poverty figures were substantially larger for communities served by BOBs and almost twice as large where those banks hold at least 20 percent of a community's deposits.
For poverty as officially measured, the rate rose from 14.5 percent in 2000 to 17.3 percent in 2011. The pattern for individuals in families below low double the official poverty line resembles that for the other poverty cut-offs. It is notable that, where BOBs hold at least 20 percent of a community's deposits, more than half of the residents live below the double-poverty cut-off. This finding suggests that BOBs tend to serve low-income customers with very limited asset holdings. (See "Poverty Rates for U.S. Areas Served by Black-Owned Banks.")
Poverty Rates for U.S. Areas Served by Black-Owned Banks
National average Blackowned bank present in market Blackowned bank holds more than 5 % of deposits Blackowned bank holds more than 20% of deposits Percent reporting deep poverty (income is below 50% of poverty level) 2009-2011 8.9 12.8 13.2 15.5 2000 7.9 13.1 14.5 15.5 Percent reporting income below poverty level 2009-2011 17.3 24.2 25.0 29.3 2000 14.5 22.9 25.5 27.4 Percent reporting income below double the poverty level 2009-2011 35.7 45.9 46.9 52.4 2000 31.4 42.6 46.6 49.2
Source: FDIC, Federal Reserve, Missouri Census Data Center, Census 2000, and the 2009-2011 American Community Survey.
It is reasonable to conclude that BOBs are located predominantly in nonwhite communities with poverty rates almost twice the national average, suggesting that they primarily serve the needs of lowincome customers.
The fact that these relationships are strongest where BOBs hold at least 20 percent of deposits further implies that BOBs locate in areas that other banks view as unprofitable. These conclusions mirror past predictions that, to survive, BOBs would increasingly serve niches where they were not in direct competition with nonminority-owned banks. Given that BOBs are often one of the few financial intermediaries found in low-income areas, they are vital sources of capital for the residents and provide banking services to communities that are often barren of any other mainstream banking services. For members of the communities they serve, BOBs are a source of valuable jobs with career ladders, such as tellers, loan officers, and mortgage originators. They offer family wages and the opportunity for training and skill enrichment.
Economies of scale make mergers and acquisitions a force in both the general banking industry and the black-owned-bank industry. Although consolidation adds a layer to the direct interaction between customers and upper management, it appears likely to continue as the complexity of regulation and the cost advantages of size encourage institutions to grow larger.
Russell D. Kashian is a professor in the economics department and director of the Fiscal and Economic Research Center at the University of Wisconsin, Whitewater. Richard McGregory is assistant vice chancellor of multicultural affairs at UWISC Whitewater, and Derrek Grunfelder McCrank is a researcher at the Fiscal and Economic Research Center. Contact them at email@example.com.
 See E. Elyasiani and S. Mehdian, "Productive Efficiency Performance of Minority and Nonminority-Owned Banks," Journal of Banking and Finance 16 (1992): 933-948; and Z. Iqbal, K. Ramaswamy, and A. Akhigbe, "The Output Efficiency of Minority-Owned Banks in the United States," International Review of Economics and Finance 8 (1999): 105-114.
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 R. Kashian, R. McGregory, and N. Lockwood, "Do Minority-Owned Banks Pay Higher Interest Rates on CDs?" Review of Black Political Economy (2013).
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 C. Gerena, "Opening the Vault," Federal Reserve Bank of Richmond Region Focus (spring 2007): http://www.richmondfed.org/publications/research/region_focus/2007/
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 See "Minority-Owned Banks," Federal Reserve Statistical Release, http://www.federalreserve.gov/releases/mob/; and "Minority Depository Institutions," Federal Deposit Insurance Corporation, http://www.fdic.gov/regulations/resources/minority/MDI.html.
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 J. Duker and T. Morton, "Black-Owned Banks: Issues and Recommendations," California Management Review 17, no. 1 (fall 1974): 78-85.
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