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Decades before the dawn of the Civil War there were discussions about creating black-owned banks in the United States. These institutions would serve as not only vital and necessary catalysts for economic opportunity, but also stand as powerful symbols in the fight against slavery and for racial equality. Given the environment, it is understandable why these earliest visions could not be immediately realized.
Although the War eventually brought freedom, access to the nation’s established financial system was not forthcoming. Instead, the necessary credit to establish a business or help a family had to be sought through non-traditional channels, such as through wealthy individuals who were willing to lend or cooperative initiatives. Often, these efforts only achieved limited success. Meanwhile, a bank established by the government to serve the former slaves – known as Freedman’s Bank – came under the control of established financiers. The machinations of these powerful individuals, who used the bank’s resources for their own purposes, decimated the life savings of thousands of depositors.
Finally, in the late 1800s the dreams of the earliest visionaries were realized. The nation’s first black bankers were able to overcome numerous challenges to begin serving as an important source of credit while also providing training and jobs. These banks were among the most innovative and resilient of the era. They were truly community banks, offering the benefits described by the historic Maggie Lena Walker, who later became famous as the nation’s first female minority banker:
“Let us put our moneys together. Let us use our moneys; let us put our moneys out at usury among ourselves and reap the benefit ourselves. Let us have a bank that will take the nickels and turn them into dollars.”
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A note from President and CEO Esther George
Community banks are a key mechanism for serving a wide range of borrowers. For a community under any definition – be it a rural town, an urban neighborhood or an ethnic population – these banks can serve as both the catalyst and the backbone for sustained growth. They are most often owned from within the community. As I have seen firsthand across the span of my more than 35 years in banking, these banks are usually in the best position to understand local conditions, needs and opportunities. They are the cornerstone.
Thus it is especially troubling that our nation has seen a continuing downward trend in the number of community banks. Within this decline, and even more concerning, has been the disproportionate reduction in the number of African American community banks. Since 2001, the number of African American banks has declined by more than half – a trend that is not reflective of what we have seen in other categories of minority depository institutions (MDIs). Meanwhile, one out of every five African American households in the United States is unbanked – the highest rate among any race or ethnic designation reported by the FDIC.
Overall, we know that MDIs are more likely than their peers to operate in neighborhoods with lower incomes and higher poverty rates than the national average. Additional research has shown that African American banks in particular may be located in areas where other banks are unlikely because other institutions view these communities as unprofitable. As a result, families and businesses without a local bank face the potential of falling victim to the exploitive practices of alternative financial services providers, such as payday lenders, when they need to borrow.
Efforts have been made on numerous fronts to address these issues, but progress has been slow. More needs to be done, but meaningful solutions have not yet become apparent.
At the Federal Reserve Bank of Kansas City, it has long been our view that those seeking to address the most pressing issues we face today might benefit from the insight of a historical perspective.
The earliest banks in the United States formed to meet a public demand for capital that in turn became the catalyst for our then-emerging national economy. For the first African American banks, it was not only about serving as a source of credit for businesses and consumers, but also about providing training opportunities and jobs for African Americans, supporting economic development and, importantly, pride. These banks played a significant role in the fight for economic independence and opportunity.
This volume focuses not only on these earliest efforts but also on the individuals involved. Some of their names will be well-known. It is our hope that in their work and experience might be found some beneficial insight as we seek ways to ensure the equitable access to financial services by all Americans.