Less than 1 percent of all Federal Deposit Insurance Corporation-insured banks are considered Black-owned.
The FDIC is one of two agencies that supply deposit insurance to depositors in American depository institutions. The other being the National Credit Union Administration, which regulates and insures credit unions.
FDIC insurance for banks is critical because it insures checking accounts, savings accounts, money market deposit accounts and certificates of deposit.
The number of Black-owned banks has dwindled drastically. Between 1888 and 1934, there were 134 Black-owned banks, today only 20 Black-owned banks qualify as Minority Depository Institutions, according to FCIC.
And despite recent cash infusion from corporations like Yelp, Netflix, and Microsoft in Black-owned banks, they are still struggling financially.
“I think part of it has to do with the broader trend in the banking community,” Michael Neal, senior research associate at the Urban Institute, told CNBC. “We’re seeing the number of banks overall declining and assets being concentrated, particularly in your larger global and more complex financial institutions.”
Black-owned banks still lack the assets needed to compete against big banks. Black-owned OneUnited Bank, for example, manages more than $650 million in assets. By comparison, JPMorgan and Bank of America each manage assets more than $2 trillion, CNBC reported.
“Whatever the struggles are of the community, the banks have the same struggle because they’re enmeshed in that community,” said Mehrsa Baradaran, professor of law at the University of California Irvine. “They cannot change it unless the community itself has more wealth and has more access, and we have less discrimination as a society.”
While nationwide, Black banks are working to stay viable, in Iowa, Black businesswoman ReShonda Young is attempting to bring a Black-owned bank to the Hawkeye State. She found an old church in Waterloo that would be the perfect space, but she needed funds to buy the property.
So in 2020, she hired banking consultants to help in fundraising and the complex steps of opening a bank.
“It is a process that generally takes a good year and a half,” she said in December 2020.
During 2021 she tried different fundraising methods — from community outreach to approaching large banks where she had some connection.
Her target goal was to raise $10 million. So far, Young says she has about 5 percent of the money needed, according to USA Today. Besides funding hurdles, Young also faces getting federally regulated to run a financial institution.
You need permission from at least two regulatory authorities when starting a bank. Information about the organizer(s), the business plan, senior management team, finances, capital adequacy, risk management infrastructure, and other relevant factors must be provided, according to the Federal Reserve.
The proposed bank, Bank of Jabez, must first receive approval for a federal or state charter. But before granting a charter, it must be determined that the applicant bank has a reasonable chance for success and will operate in a safe and sound manner. After this, the proposed bank must obtain approval for deposit insurance from the Federal Deposit Insurance Corporation (FDIC).
Young is the founder of Popcorn Heaven, a gourmet popcorn chain that opened in Waterloo, IA, in February of 2014. She has licensed Popcorn Heaven locations in North Carolina, Maryland, Illinois, California, Missouri, and Iowa. Young wants to use her bank venture to help close the racial wealth gap.
Read: “Black Banks Offer ‘Access to Capital to Address the Wealth Gap’: ‘Bank Black’ Movement Re-Energized In New Climate of Racial Reckoning”