AlainLocke
Banned
Why Black Banks Need Policy Support, Not Just Deposits
Few institutions are as strongly connected to black communities as historically black banks. Where others see neighborhoods that are too risky or, conversely, only targets for predatory lending, they see differently.
Joseph Haskins, CEO of The Harbor Bank of Maryland, tells of a black entrepreneur from an inner-city neighborhood who came needing a loan to get started working on a new contract for his storage and junk removal business. The loan would allow him to hire another 15 people on top of the 25 he already employed. Interested in the impact of such a loan, Haskins asked about who those 15 people would be.
“He has no problem finding people in the inner city because they know each other,” Haskins, who co-founded Harbor Bank 35 years ago, adds. “He’s not holding an incarceration against them, or counting them out because they didn’t finish high school. He said, ‘If I can get this money, it’ll allow me to do this contract, and you can come up and see who I’ll hire.’”
Historically black banks have had a strong role in black communities. Their loans often finance projects that other banks wouldn’t take on, and at fairer interest rates.
And yet partnering with or addressing the top priorities of historically black banks hardly registers a blip on policymakers’ radar screens. At best, banks that serve black communities have been left to fend for themselves, while public policies provided an extra boost to banks serving exclusively white communities. At worst, policymakers from both parties have held up historically black banks as a way of distracting from structural changes necessary to address the racial wealth gap in the United States.
That history of black banks is now more accessible than ever before, contained in the pages of The Color of Money: Black Banks and the Racial Wealth Gap, by author and law professor Mehrsa Baradaran.
“I want to attack this myth about small banking in general, that poor, marginalized communities can overcome systemic macro-economic problems through small banks or community banks,” Baradaran says. “If we’re trying to close the wealth gap, we have to do it the way that everyone else has been able to gain wealth,” referring to the long history of government working hand-in-hand with private banks to create widespread wealth—but only for white households.
Offering up a bank as a distraction or a consolation prize in lieu of structural change was there at the very beginning of black banking in the United States.
As told in Baradaran’s book, General William Tecumseh Sherman had confiscated some 400,000 acres of land in the South during the Civil War, and the U.S. government was prepared to hand it over to ex-slaves as a place for them to live free of white control. After President Abraham Lincoln’s assassination, the plan was called off, and all that was left was Freedman’s Savings Bank, the first historically black bank and the only savings bank ever created by an act of Congress. As the book notes, the bank’s intention was to allow ex-slaves to save up their new wages to buy the land that Sherman had promised them. Instead, ex-slaves soon ran into the policies of Jim Crow that denied them the means to make the purchase. In the end, all they got was the bank.
A century later, after the Civil Rights Movement achieved a string of key policy victories including the Civil Rights Act, Voting Rights Act, and Fair Housing Act, President Richard Nixon “threw his weight behind black banking so that he could oppose controversial desegregation programs and woo white moderates and conservatives unwilling to push further on racial reforms,” Baradaran writes. So politically successful was Nixon’s platform of “black capitalism,” Baradaran writes, that every administration since Nixon’s has adopted it in one form or another, including current or former members of the current administration. From Reagan, to Carter, to both Bushes, to Clinton, to Obama, Baradaran shows how each administration has said a lot about the importance of black-owned business and black-banks, while mostly ignoring the structural changes and policy shifts needed to actually create wealth in black communities. The pattern has continued for members of the Trump administration.
“When Steve Bannon is pushing black businesses, you’ve got to wonder,” says Baradaran. “It’s surprising to some, but not if you understand the history.”
There are positive lessons to learn from history, too—like the power of policy to work with the banking system to create wealth for an entire generation of people at a time. Between 1934 and 1968, Baradaran writes, mortgage insurance from the Federal Housing Administration and an accompanying Veterans Administration program opened a spigot of mortgage lending, resulting in millions of mortgage loans on mass-produced homes in ready-made communities across the country. “If you could save a few thousand dollars, you could buy a house, build wealth, and become middle class,” Baradaran writes.
But those loans were only available to white households. The Federal Housing Administration’s rules also contained a number of restrictions that made it essentially impossible to offer those mortgages to people or neighborhoods of color. As Baradaran notes in her book, from 1934-1968, 98 percent of federally insured home mortgages went to white households—the practice that became known as redlining. Those homebuyers left behind black households in inner city neighborhoods that began to decay. Meanwhile, because they focused on lending to black households, historically black banks never got the same boost that other banks got.
“The Federal Housing Administration did more to shape American life than any other government agency during the New Deal,” Baradaran writes. “It is also unparalleled in the injustice its policies wrought on the black population.”
Few institutions are as strongly connected to black communities as historically black banks. Where others see neighborhoods that are too risky or, conversely, only targets for predatory lending, they see differently.
Joseph Haskins, CEO of The Harbor Bank of Maryland, tells of a black entrepreneur from an inner-city neighborhood who came needing a loan to get started working on a new contract for his storage and junk removal business. The loan would allow him to hire another 15 people on top of the 25 he already employed. Interested in the impact of such a loan, Haskins asked about who those 15 people would be.
“He has no problem finding people in the inner city because they know each other,” Haskins, who co-founded Harbor Bank 35 years ago, adds. “He’s not holding an incarceration against them, or counting them out because they didn’t finish high school. He said, ‘If I can get this money, it’ll allow me to do this contract, and you can come up and see who I’ll hire.’”
Historically black banks have had a strong role in black communities. Their loans often finance projects that other banks wouldn’t take on, and at fairer interest rates.
And yet partnering with or addressing the top priorities of historically black banks hardly registers a blip on policymakers’ radar screens. At best, banks that serve black communities have been left to fend for themselves, while public policies provided an extra boost to banks serving exclusively white communities. At worst, policymakers from both parties have held up historically black banks as a way of distracting from structural changes necessary to address the racial wealth gap in the United States.
That history of black banks is now more accessible than ever before, contained in the pages of The Color of Money: Black Banks and the Racial Wealth Gap, by author and law professor Mehrsa Baradaran.
“I want to attack this myth about small banking in general, that poor, marginalized communities can overcome systemic macro-economic problems through small banks or community banks,” Baradaran says. “If we’re trying to close the wealth gap, we have to do it the way that everyone else has been able to gain wealth,” referring to the long history of government working hand-in-hand with private banks to create widespread wealth—but only for white households.
Offering up a bank as a distraction or a consolation prize in lieu of structural change was there at the very beginning of black banking in the United States.
As told in Baradaran’s book, General William Tecumseh Sherman had confiscated some 400,000 acres of land in the South during the Civil War, and the U.S. government was prepared to hand it over to ex-slaves as a place for them to live free of white control. After President Abraham Lincoln’s assassination, the plan was called off, and all that was left was Freedman’s Savings Bank, the first historically black bank and the only savings bank ever created by an act of Congress. As the book notes, the bank’s intention was to allow ex-slaves to save up their new wages to buy the land that Sherman had promised them. Instead, ex-slaves soon ran into the policies of Jim Crow that denied them the means to make the purchase. In the end, all they got was the bank.
A century later, after the Civil Rights Movement achieved a string of key policy victories including the Civil Rights Act, Voting Rights Act, and Fair Housing Act, President Richard Nixon “threw his weight behind black banking so that he could oppose controversial desegregation programs and woo white moderates and conservatives unwilling to push further on racial reforms,” Baradaran writes. So politically successful was Nixon’s platform of “black capitalism,” Baradaran writes, that every administration since Nixon’s has adopted it in one form or another, including current or former members of the current administration. From Reagan, to Carter, to both Bushes, to Clinton, to Obama, Baradaran shows how each administration has said a lot about the importance of black-owned business and black-banks, while mostly ignoring the structural changes and policy shifts needed to actually create wealth in black communities. The pattern has continued for members of the Trump administration.
“When Steve Bannon is pushing black businesses, you’ve got to wonder,” says Baradaran. “It’s surprising to some, but not if you understand the history.”
There are positive lessons to learn from history, too—like the power of policy to work with the banking system to create wealth for an entire generation of people at a time. Between 1934 and 1968, Baradaran writes, mortgage insurance from the Federal Housing Administration and an accompanying Veterans Administration program opened a spigot of mortgage lending, resulting in millions of mortgage loans on mass-produced homes in ready-made communities across the country. “If you could save a few thousand dollars, you could buy a house, build wealth, and become middle class,” Baradaran writes.
But those loans were only available to white households. The Federal Housing Administration’s rules also contained a number of restrictions that made it essentially impossible to offer those mortgages to people or neighborhoods of color. As Baradaran notes in her book, from 1934-1968, 98 percent of federally insured home mortgages went to white households—the practice that became known as redlining. Those homebuyers left behind black households in inner city neighborhoods that began to decay. Meanwhile, because they focused on lending to black households, historically black banks never got the same boost that other banks got.
“The Federal Housing Administration did more to shape American life than any other government agency during the New Deal,” Baradaran writes. “It is also unparalleled in the injustice its policies wrought on the black population.”
