From ... in Literature Economics Research — Mar 5, 2025

The Banks We Deserve: Excerpt

Ed note: This excerpt is taken from From The Banks We Deserve by Oscar Perry Abello. Copyright © 2025 Oscar Perry Abello. Reproduced by permission of Island Press, Washington, D.C. The Banks We Deserve: Reclaiming Community Banking for a Ju

bookcover The Banks We Deserve: Reclaiming Community Banking for a Just Economy

by Oscar Perry Abello

Published by Island Press

https://islandpress.org/books/banks-we-deserve#desc

Excerpt from Chapter 1 “For Us, by Us: Minority-Owned Community Banks and Credit Unions” (pages 3-5)

Every neighborhood, every community, regardless of the race, ethnicity, or national origin of its residents, deserves to have this kind of access to credit that doesn’t depend solely on credit scores or personal wealth. When they make loans, community banks in the United States have always considered broader factors like relationships, benefit to the community, potential for growth, and character—especially before the invention of credit scores in 1989. There are still thousands of community banks where bank loan officers, credit committee members, and board members make loans that depend on their relationships and their knowledge and instincts about the importance of a business in a community, like Julio’s grocery store in its section of the Bronx. But Ponce is one of the very few such community banks whose ownership and leadership come from racial or ethnic minority communities.

Community banks owned and controlled by racial or ethnic minorities in the United States have always been few and far between. Legal scholar and banking reform activist Mehrsa Baradaran called the early 1930s “the golden age” of Black banking, but even then only about 130 of the nearly 30,000 banks across the United States were Black-owned. Of the remaining 4,128 community banks in the United States in 2024, only 124 are classified by the Federal Deposit Insurance Corporation as a “minority depository institution”—a term that will become obsolete, as these “minority” communities will soon make up the majority of the US population. To be classified as a minority depository institution, either a majority of a bank’s voting ownership must be of one designated racial minority group or the bank’s board members and the bank’s target market must be predominantly one or a combination of minority groups. Among minority depository institutions today, 22 community banks are classified as Black, 22 as Hispanic, 19 as Native American, and 56 as Asian and Pacific Islander.

While it’s much more likely today than it was in past decades for non-Hispanic White-owned community banks to do business with people of other races and ethnicities, recent research reveals the ongoing starkness of the divide. Banks still tend to locate their branches in neighborhoods whose residents look like the banks’ leadership or ownership, according to a joint analysis by researchers at Johns Hopkins University and the National Bankers Association, a national trade association for minority-depository institutions. Non-Hispanic White-owned banks tend to locate their branches in predominantly non-Hispanic White zip codes, whereas Black minority depository institutions tend to locate branches in predominantly Black zip codes, Hispanic institutions in Hispanic zip codes, and so on. A follow-up study from the National Bankers Association found that minority-designated banks or credit unions far outperformed their non-minority counterparts in terms of lending to majority-minority census tracts. Another pair of researchers, using publicly available residential mortgage data, found that almost 70 percent of mortgages from minority-depository institutions go to borrowers of the same race as the owners of the bank, and minority borrowers applying for mortgages at banks whose owners are of the same minority group are 9 percent more likely to be approved than otherwise identical minority borrowers in non-minority banks. On the small business front, small businesses owned by people of color are just half as likely as White-owned small businesses to be fully approved for a loan, line of credit, or cash advance at a small bank—a disparity that starts to make sense when you consider that community banks remain an important source of credit for small businesses, yet there are so many more community banks owned by or serving White communities.

It’s hard to say how many community banks or credit unions should be designated as minority banks or credit unions, but their numbers today are far behind their shares of the population overall. The US Census Bureau’s 2024 estimates say 42 percent of US residents identify as Hispanic or non-White. If the percentage were the same for community banks and credit unions, there would be 1,739 community banks designated as minority depository institutions (compared to 124 in reality) and about 2,000 credit unions with a minority designation (compared to 492 in reality).

The race and ethnicity of a bank’s ownership and leadership still shape where a bank does business and with whom. Race and ethnicity shape the imaginations of loan officers and credit committees when it comes time to make a judgment call on whether a particular business or real estate project is likely to succeed and repay a loan. For all the numbers that bankers like to see before approving a loan, many lending decisions still come down to someone getting the benefit of the doubt, and in the United States today, it’s still more likely someone gets the benefit of a doubt when they look like the person or people making the decision on a loan. Across the entire United States, there are still 4,004 non-Hispanic White-owned community banks whose loan officers and credit committees are giving that benefit of the doubt to those who look like their ownership and leadership, whereas just 124 minority- designated community banks are doing the same for those who look like their ownership and leadership. Ponce Bank is the only Hispanic minority depository institution based in New York City, a city where 2.4 million of its 8.3 million residents are Hispanic. There’s only one Black minority depository institution based in New York, despite the city having 1.9 million Black residents. Meanwhile, New York City is home to 20 non-Hispanic White-owned community banks for a city with 2.6 million non-Hispanic White residents. In Baltimore, a metro that is 40 percent Black, there are 13 community banks, but only one is a minority depository institution, the Black-owned Harbor Bank of Maryland. In New Orleans, a metro that’s 49 percent people of color, out of ten community banks, the only minority depository institution is the Black- owned Liberty Bank and Trust.

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