Boston-based OneUnited “owes $12 million in federal bailout funds and is skipping interest payments. It also has received poor marks for community lending,” the Globe writes, adding that the bank’s foreclosures on historic churches, among others, have angered many in Boston’s black community. There are also allegations that Rep. Maxine Waters improperly helped secure the bailout money for OneUnited, where her husband held more than $350,000 in stock, which has led to a protracted congressional ethics investigation.
The shaky status of OneUnited — the country’s largest black-owned bank — and other minority-owned banks has prompted some to argue that the institutions aren’t necessary because fair lending laws have been passed and the racial barriers to lending have been lowered. Their argument: Why not just let bigger, more solvent institutions take their place, rather than continue propping them up with federal funds? The numbers of minority-owned banks across the country are tiny already, with only 28 black-owned banks and 33 Hispanic-owned banks currently operating, according to the FDIC.
But simply letting minority banks expire won’t necessarily fix the flawed lending practices within low-income communities, whose residents are still facing big credit access problems. In the lead-up to the crisis, big mainstream financial institutions were among those supporting faulty, deceptive mortgage lending that ensnared a disproportionate number of minority home buyers. Since then, non-bank lenders such as check-cashing outfits have flourished in the same communities, some of which have been a hotbed of abusive lending practices.
At a time when even Americans with solid credit records are having trouble getting mortgages, lending practices within low-income and minority communities will need to be revisited as well. Black and Hispanic communities are still struggling to bounce back from the recession, having suffered some of the highest foreclosure and unemployment rates in the country. Both businesses and consumers in these communities will need financial services and credit access for a full recovery to happen, so there still might be an opportunity for minority-owned banks to step up and carve out a role.
There are been a few unlikely saviors along the way as well: Goldman Sachs recently came to the rescue of Harlem’s Carver Bankcorp, and Facebook’s recent IPO included minority- and women-owned banks as underwriters. But minority-owned banks also might look to the example of other community banks that have fared better during the recession: It’s an industry that’s managed to gain during the downturn by capitalizing upon a business model focused on personal relationships amid the populist backlash against big banks. Minority-owned banks have traditionally relied upon customer loyalty to shore themselves up. They need to regain that trust to serve, or other locally minded institutions might displace them.