Racial Wealth Gap: There’s concern about a racial wealth gap. The racial wealth gap is stark. The racial wealth gap is tremendous. A gap between white and black America. What is the racial wealth gap, and why is everyone talking about it? The racial wealth gap is a measure of wealth inequality between racial groups in the U. S. Here’s a prime example. Black families make up 14% of the population but own only 5% of American wealth, while white households make up 65% of the population but control 80% of the wealth. The gap traces back to the 1863 Emancipation Proclamation, which led to Freedom for almost 4 million black Americans. By 1860, their labor accounted for 60% of U. S. exports, $200 million a year. But black Americans received nothing. No land, no money. Without any money or land, how could newly free black Americans create wealth? One way could have been the banking system. Alexander Hamilton, the father of American banking, said that banking is how wealth is created. However, black Americans were overwhelmingly excluded from using banks. So, what happens when a community is barred from the mainstream banking system? They create their own.
Black banks are supposed to close the racial wealth gap. So what happened? For almost 200 years, there have been three unique barriers that have kept black America from generating the wealth the black community intended. Discriminatory lending, housing discrimination, and economic segregation. First, let’s talk about discriminatory lending. Following the Civil War in the late 1800s, black Americans had few freedoms or financial options due to legal segregation and black codes. Black codes were laws that restricted the Freedom and movement of black people and forced them to work for low wages. If you were Black, a White bank would either bar you from entering, deny your loan, or charge you higher interest rates. These were common practices of discriminatory lending, and it created a need for financial services that Black-owned banks would aim to provide.
Black communities found ways to create mutual aid opportunities, credit unions, and cooperative efforts to make sure that as they were locked out from mainstream financial institutions, they had the systems in place to make sure their financial needs were met. In 1890, one of the earliest Black banks was operating in an especially hostile territory, the Jim Crow South. Alabama’s first black-owned and black-operated bank, the Alabama Penny Savings Bank, was founded by Reverend William Pettiford. Influenced by Booker T. Washington’s principles of self-help and racial solidarity, the Alabama Penny Savings Bank was established. The bank lent money to churches and professionals in Birmingham when other banks wouldn’t. And it did this during a time when the Alabama legislature was doing everything in its power to deny black political and economic Freedom.
Pettiford partnered with powerful white bankers in Birmingham who helped with administrative and staff training. These partnerships were like cheat codes during a time when segregation laws made black-and-white relations very difficult. In 1913, the Penny Savings Bank constructed a five-story building that housed not only the bank but dozens of other black businesses. The rent from those businesses provided funding and investment capital, something black banks serving poor communities struggled to get. The Alabama Penny Savings Bank faced financial risks unique to black banks. A lack of capital or money to invest put black banks in a risky position. Not only did segregation laws shrink black banks, but black banks were also forced to invest more in the bank. With the increase in the number of potential customers, low-income customers made smaller deposits and more withdrawals.
This meant, one, operation costs were higher, so black bank owners invested more of their own money to keep the bank stable, and two, it restricted their revenue and lending capacity. Fewer loans meant smaller profits. Pettiford’s partnerships with larger banks meant he had aid during difficult times, and the bank grew significantly under his guidance. As the bank grew, assets reached over $4 billion. That’s $540,000 by 1913, equivalent to approximately $17. 1 million today. By 1914, the Alabama Penny Savings Bank was the largest and strongest black bank in the United States. But no one could be convinced to help the bank after his death. The bank failed just one year later, causing depositors to lose all their money. While the Alabama Penny Savings Bank provided an alternative to discriminatory lending, segregation made long-term economic advancement nearly impossible.
The Second Barrier to Building Wealth, Housing Discrimination. One significant driver of the racial wealth gap, as I mentioned before, is going to be homeownership. Homeownership was a significant driver of wealth, whereby every year of homeownership, homeowners gain about $14,000 in equity. Conversely, if you don’t have access to homeownership, you don’t have access to that type of equity, and that could be a problem. Housing discrimination allows banks to deny home loans to the black community through a practice called redlining. Redlining was the government-sponsored practice of denying mortgages and other financial services to segregated black and brown neighborhoods. It’s called redlining because bankers literally drew red lines around undesirable communities. One black household in a middle-class community was enough to make the federal government deny mortgage loans in the first place.
In that area. As a result, black families turned to predatory lenders or were shut out from homeownership completely. We keep having to fight battles. But a lot of the things that have happened to black folks in America were orchestrated, and they were legal. They were systemic. I mean, it wasn’t like it just happened that way. It was designed to be that way. Black banks made it their mission to fight against these policies. Maggie L. Walker was America’s first black female bank founder. Not only did she organize a black bank in the segregated South in 1903, but she managed to run a successful one in Richmond, Virginia, the former capital of the Confederacy. It was called St. Luke Penny Savings Bank. As a businesswoman and banker, Walker advocated for black women’s financial independence and the advancement of the black community.
She famously said, ‘Let us put our monies together. Let us have a bank that will take the nickels and turn them into dollars.’ By 1920, Walker’s bank had provided more than 600 mortgages to black families. It also created jobs for black professionals, allowing them to leave the lower-paying jobs. But just because a black family received a home loan didn’t mean the challenges stopped there. In 1925, Dr. Ossian Sweet and his wife Gladys bought a home on the edge of Detroit’s Black Bottom slums for $6,000. $6,000 more than its market value. But after moving in, a white mob surrounded their home for several days. They wanted them out. This story is common.
The fear that a black family moving near a white neighborhood would tip property values and send the neighborhood into decline was so great that some white homeowners were willing to resort to violence. Once the mob started to damage his property, Sweet fought back, and violence broke out. A white man was shot. Sweet was later charged and then, surprisingly, acquitted of murder. But the fear of decline is a self-fulfilling prophecy. When the white upper and middle class leave a community, property values plummet. Businesses and bankers stop investing, and neighborhoods are left underfunded. Walker’s bank continued to provide loans even when it wasn’t commercially profitable. St. Luke’s served its community for 100 years until just before the 2008 fire. It was a time of financial crisis.
Housing discrimination has continued to make black homeownership unattainable for many, widening the wealth gap. The third barrier is the result of decades of lending and housing discrimination. Economic segregation: economic segregation is the geographical separation of communities based on race and wealth. While redlining has now been illegal for over 50 years, you can see that economic segregation still has its effects in the form of economic segregation. If you look at a map of a major U. S. city, you’ll see pockets of wealth alongside pockets of poverty in historically segregated communities. And many of the predominantly black and brown neighborhoods are low-income with unequal access to education, healthcare, and upward mobility. You’re seeing communities that don’t have wealth as a function of slavery, as a function of Jim Crow, black codes, mass incarceration, and redlining.
Entering into a different system of financial services and products, and so the wealth that they should have, they don’t have, and the wealth that they could have, they will never have because they’re dealing with institutions that are preying upon their poverty. Pockets of deep poverty are typically the areas black banks serve, but they struggle to turn a profit and create wealth in their underfunded communities. So what would happen if a low-income community was able to support its businesses and entrepreneurs and keep money flowing within that community? We know what that would look like. In the 1900s, during the height of segregation, three notable pockets of black wealth existed. One was in Durham, North Carolina. During this time, Durham was home to more black millionaires than any other city in America.
Durham’s Hayti neighborhood and its black financial district created a self-sustaining black Wall Street and was a haven from Jim Crow America. It invested in black innovation and talent and enabled the flow of capital in the community. During a time when there were few options for Black businesses to secure capital, Mechanics and Farmers Bank was the only financial support for small borrowers like farmers and laborers in Durham. MNF and Durham’s Black Wall Street managed to keep the Black dollar circulating within its community for decades and created a thriving Black middle class. But most Black banks struggled to do this. And it’s why economic segregation has been so important. It’s because Black money has continued to be a barrier.
Unless every buyer and seller deposits their money into a black bank, eventually, the black dollar will flow into and grow the mainstream economy, leaving the black community with scraps. The catch-22 of black banking is that the very institutions needed to help communities escape the deep poverty caused by discrimination and segregation inevitably became victims of that same poverty. In 1958, North Carolina cut a freeway through the heart of history. The Black Wall Street, along with hundreds of homes and businesses, were destroyed. An MNF bank couldn’t withstand the decades-long decline in black banking without change. In 2015, the organization decided to diversify its customer base and market outside the black community. Out of the 5,400 FDIC-insured financial institutions, only 23 are black-owned as of 2018. If you’re black, you’re black.
And if you walk into a bank today, there’s a chance you could be arrested for trying to withdraw money from your account, denied a mortgage even if you have good credit, or issued predatory loans with high interest rates. The truth is that black-owned banks face many of the same challenges today as they did 200 years ago. But they’re not giving up the fight for financial justice. Modern movements like Bank Black, championed by celebrities like rapper Killer Mike, are revitalizing the push for equity. Killer Mike And,rew Young Jr., and others co-founded a financial tech company that recently secured a $45 million investment to encourage banking within the black community and build black wealth. An NBA team and the NFL made history when they chose black banks for loans as high as $35 million.
And One United Bank, the nation’s largest and first black-owned digital bank, is fighting for 49% of its assets. It’s not just a black bank; it’s a bank that supports its community. It’s a bank that provides loans and financial literacy to low-income communities. Addressing these ongoing issues is crucial to creating a more equitable and inclusive financial system. So, if black banks alone aren’t going to help close the gap, what could? Initiatives like student loan debt forgiveness, which disproportionately affect black and brown graduates. And expanding affordable housing programs and other forms of financial aid for black reparations could help close the gap. And reparation doesn’t have to be a boogeyman concept. It’s not all about cash. It’s about access. Access is a form of reparations, right? Black banks may not be able to completely solve the racial wealth gap, but they are one important piece of the puzzle in growing Black wealth in America. Let’s get you into a home. Let’s get you into that business. Let’s get you into a bank account. And let’s get you started on this journey of economic mobility so this generation and the next can say; I’m no longer a victim of these mainstream policies and products. We’re on our way toward Freedom.
Freedom That’s what we need Freedom Giving a little love you can every day It’s not as hard as some people might say Cause I’ve got time to go to you I’ve got time, tell me the world, where do we Don’t you know that peace and love.
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