01 Dec 2010 Bank Creation Key to Black Economic Development, by B.B. Robinson, Ph.D.
It is readily acknowledged that black Americans have catching up to do when it comes to income and wealth.
Many people say this predicament is related to racism and discrimination. Please, let’s be objective enough to look at other factors.
For some, the knee-jerk reaction is to promote creating new black-owned, black-run businesses — any businesses, it seems. Income and wealth inequality, it is said, diminishes as black entrepreneurship increases.
That’s true, but there’s more to it. While opening a business is hopeful, it isn’t the complete solution. Everyone knows that hope is no strategy.
There must be a better strategy for producing meaningful and sustainable results to enhance black prosperity.
Thoughtful economists take a more comprehensive view about black American economic development. They adhere to the notion that black businesses should be initiated more selectively. Begin with small service firms that expand and then transition to small-scale manufacturing firms. In a final step, large-scale manufacturing firms can be developed from which lucrative, big-ticket items can be produced and sold.
While this is a systematic and strategic approach on the road to success, the fulcrum of the strategy appears to be missing.
Money is the lubricant of modern economies. Without a well-functioning financial system, it is impossible to develop and maintain a sustainable economy.
That’s why the key to black economic development lies with creating more black-owned banks.
Black banks can leverage deposits and create loans for businesses that have the best opportunity to produce good returns. As these businesses grow and create jobs, they produce new customers for banks, which grows banks.
It is a complete and virtuous circle.
Black-owned banks in black communities can even draw the traditionally unbanked poor into the formal economy and push egregiously exploitative payday and check-cashing operations out of business.
Creating a bank is not easy, but it is not exactly a difficult process either. A bank is created by forming a corporation and fulfilling requirements for chartering financial institutions set by the Federal Deposit Insurance Corporation and state governments. The most difficult aspect of bank formation is meeting capitalization requirements.
Today, in most states, it takes about $20 million to start a bank. That may sound like a hefty sum, but it is really quite small when one considers that it would take a little more than 31,000 black American households to invest as much as their average annual religious contributions ($683 in 2008) to form a bank. Just 20,000 black households could form a bank if they saved $20 a week for one year and invested that $1,000 to create a black bank.
This is why it should be possible for every city in America with a sizeable black population to have at least one black-owned bank.
Unfortunately, this is not the case.
According to a March 2010 Federal Reserve Board report, there are only 30 black-owned banks in the United States — one for every 1.3 million black Americans. Typically, these are only small operations with limited financial assets.
Ever watch an old Western? Remember that early communities on America’s frontier grew up around banks. Watch the news and see how Federal Reserve Chairman Ben Bernanke, who provides oversight for the nation’s banking system, is considered key to our national economic success. Therefore, it is anachronistic that black America fails to see the importance of creating and maintaining our own banks.
This is something that we must do.
It won’t happen overnight, but if black Americans begin to develop our own banks in our own communities, then money will remain in our communities to create businesses and jobs, and place more black Americans on a sound fiscal footing.
It is only under these conditions that we can expect our unemployment rate to decline substantially, our incomes to rise and our wealth to grow.