The Great Recession of 2008 changed banking in the U.S. forever, not least by drastically consolidating the entire financial sector. From 2007 to 2013, the number of U.S. banks declined by 14%, representing more than 800 institutions that either shut down, were sold, or merged with other banks.
Minority owned institutions were hit even harder. The number of black-owned financial institutions fell by by 24% from 2007 to 2009, according to Creative Investment Research (CIR), an investment research and management company founded in 1989 that focuses on minority-owned financial institutions.
Today, there are just 23 black-owned banks left in America, CIR says. And despite the efforts of the recent #bankblack movement, CIR now projects that there will be just seven black-owned banks left by 2028.
In a presentation shared with Fusion, CIR showed how that would represent an 87% decline from the height of the black bank era, reached around 1994, when there were 55 black-owned banks in America.
There are two main reasons for this decline, William Michael Cunningham, CIR'S impact investing specialist and report co-author Crystal Liu told me by phone. And they have nothing to do with subprime lending, which Cunningham said almost all black-owned banks stayed away from.
The first is the simple fact of the consolidation trends that are taking place in the rest of the banking industry. The number of banks in America has continued to decline even during the recovery, with an annual average of about 4% fewer institutions each year.
"Given trends in consolidation, you're going to see larger and larger financial institutions," Cunningham said. He pointed out that there is already no black-owned bank with more than $1 billion in assets, which makes it harder for banks to make investments and absorb losses.
More consequential, Cunningham argues, has been a lack of commitment from federal bank regulators to supporting minority banking institutions. Regulators, he says, have seemed to abandon Section 308 of the 1989 Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), which established a goal of "[preserving] the number of minority depository institutions." And the Dodd-Frank financial reform bill passed after the recession included a directive to establish offices of Minority and and Women Inclusion—offices that Cunningham says have been mostly dormant.
"Neither [directive] has been effective as measured by numbers and the data," Cunningham said.
In an email, a Federal Reserve spokesperson pointed Fusion to its Partnership for Progress program, which seeks to help minority owned banks through "one-on-one guidance, workshops, and an extensive interactive web-based resource and information center."
A rep for the Federal Deposit Insurance Corporation (FDIC), which insures Americans' bank accounts, said that FDIC regional managers regularly meet with boards of directors of minority-owned banks. However, it did acknowledge the decline in minority-owned banks, which it attributed to the lack of "a talented pipeline of managers at a time when a number of senior bank managers are at or nearing retirement."
"We at the FDIC are looking closely at the succession planning issue at institutions of all types across the country," the FDIC rep said. "We are particularly focused on this issue and how it relates to MDIs and are eager to work with interested parties."
Cunningham, CIR'S impact investing specialist, told me that the importance of having black-owned banks isn't just symbolic. The day before Martin Luther King, Jr. was assassinated, Cunningham explained, he spoke about the need for black people to keep and build wealth within their own communities. Those needs have not changed, Cunningham said.
"Its not that blacks don’t have money," he said, noting that black people currently have $1.2 trillion in purchasing power and climbing. "It's that the money is going to non-black owned banks that doesn’t support their interests. We know that because you had large financial institutions selling instruments diametrically opposed to the interest of the black community."
Rob covers business, economics and the environment for Fusion. He previously worked at Business Insider. He grew up in Chicago.