Why Black Americans Need Black-Owned Banks

Hours after a 19-year-old Black man likely tripped and reached out in alarm for the hand of a nearby white woman in March 1921, Tulsa, Oklahoma’s white-owned newspaper demanded his lynching with ruthless clarity: “Nab Negro for Attacking Girl in Elevator.”

Over the next 18 hours and across 35 city blocks, smoke and ash billowed above a nightmare-scape of thousands of incinerated homes and hundreds of butchered Black bodies—all for an offense that historians now agree was widely exaggeratedly and misunderstood. By the time sun rose the following morning over Greenwood, rioters had reduced the seat of Black prosperity in America to rubble. One hundred years later, we’ve still not recovered.

White mobs, many of them deputized and armed by local officials, managed to destroy what is estimated to be the equivalent today of more than $200 million in property value from local Black home and business owners. The liquid asset fallout from the attack was even worse because many Greenwood families stored their cash savings in their homes out of fear of commercial banks.

Then as now, Black skepticism of financial institutions is deeply rooted, elastic and intergenerational. That apprehension toward banks helps explains why one of us felt it necessary to stash mountains of cash under a mattress after being drafted out of high school into the NBA. It’s a sentiment learned from our grandmothers and from theirs. You can trace it to 1874, 50 years before the Greenwood riots, to the collapse of Freedman’s Savings and Trust Company, whose federal mismanagement resulted in the catastrophic loss of deposits from freed slaves worth more than $22 million today.

The United States Congress authorized the 1865 chartering of Freedman’s to help newly freed slaves build wealth. Less than a decade later, scratch deposits from freedmen and freedwomen across the country had swelled to the current equivalent of $65,200,000, but corruption and malpractice by the bank’s all-white leadership—until the eleventh-hour installation of the abolitionist Frederick Douglass—resulted in the bank’s insolvency.

A century and a half after Freedman’s collapse, Black mistrust of banks remains so durable today that 49% of all Black households in America are underbanked or completely unbanked, compared to just 15% of whites, according to the Federal Reserve. Instead, these families rely on costlier and often predatory alternatives like check-cashing, payday loans, money orders and prepaid credit cards. By one estimate, those fees can exceed $40,000, an amount more than double the average net worth of the typical Black household in America—over a financial lifetime.

That exclusion carries additional burdens, too, like the inability to secure financing for home or business loans. According to the most recent data, mortgage applications by Black borrowers are rejected at a rate 80% higher than white applicants. At the same time, business loan applications by Black applicants are twice as likely than white firms to be denied credit.

Read more: A Survivor of the Tulsa Race Massacre Says Her Family Is Still Trying to Break Its Curse, 100 Years Later

Black wealth in this country has never recovered from the Greenwood riots and Freedman’s collapse, so it’s ironic that many—including us—believe the key to closing America’s yawning racial wealth gap lies in Black banks. Freedman’s was the profoundly flawed execution of an otherwise brilliant notion that remains as timely today as it was in the days following Emancipation: a mission-driven bank to help low-income Black families build real wealth.

As of June 2020, there were 18 Black banks in communities across the U.S., each working to shrink the share of the underbanked population and extend capital to entrepreneurs and would-be homeowners that major commercial banks will not.

Supporting Black banks through commercial transactions, capital investments or significant deposits diversifies the institutions’ loan portfolios and bolsters their capital cushion to serve disadvantaged communities better. Doing so will finally help liberate Black banks from the shadow and suspicion of Freeman’s collapse by enabling their missions to uplift the underbanked and disadvantaged.

One young man stumbling in an elevator—that was all it took to erase generations of Black wealth. We can’t change the scarred history of Tulsa, but we can change its future. Banking Black enables these lenders to deploy resources into communities that have never recovered from historical injustices.