In less than a year, in a major about-face, new players are entering the Black banking sector.
The latest example came in late February when Redemption Holding Co. (RHC) marks the first time in U.S. history an existing non-Black bank would become a Black-owned minority depository Institution via acquisition.
The proposed deal would reverse a long trend of Black banks closing over the past several years. FDIC data showed 21 Black banks in America as of the fourth quarter of 2022, down from a whopping 48 in 2001. The resurgence comes after at least five—counting the RHC deal—Black banks or credit unions have declared start-up or acquisition plans to enter the financial-services space.
At RHC, Dr. Bernice A. King, daughter of the late civil rights leader the Rev. Dr. Martin Luther King Jr., is among the Black investors involved with its deal. If gaining federal regulatory approval, the group would pick up a bank in Holladay, Utah, with $68 million in assets and $56 million in deposits.
Financial terms of the deal were not disclosed. RHC did not respond to requests for comment.
RHC reported former White House policy advisor and SBA regional administrator Ashley D. Bell will be its executive chairman and CEO. King will be senior vice president of corporate strategy and alliances and will sit on RHC’s advisory board with director and co-founder, former NFL player and investor Dhani Jones.
“Black banks make the American dream possible for all Americans by deploying resources that uniquely address the financial realities of communities that have been systematically excluded, overcharged, and under-capitalized for hundreds of years,” Bell said. “Redemption will serve as a lifeline to the next wave of Black and Brown first-time home buyers and small business entrepreneurs across the country.”
Black-owned banks have typically opened in their communities to target individuals and small businesses ignored by larger mainstream banks. Black banks have also pursued Blacks who have historically not been inclined to open accounts or borrow from traditional larger banks.
Check out these financial institutions that have made or are considering such moves. In June 2022, it was reported BetaBank was attempting to open in Chicago if it gains approval and is capitalized. In September 2022, the National Credit Union Administration granted a federal charter to the now-open People Trust Community Federal Credit Union in North Little Rock, Arkansas.
For Members Only Federal Credit Union in Chicago is being launched this year by Alpha Kappa Alpha, the nation’s oldest Black sorority. And Adelphi Bank intends to open by mid-April in Columbus, Ohio, after raising $24.5 million in capital from individuals and companies in Central Ohio. (Banks generally must gain $10 million to $30 million in starting capital, research shows.)
Along with core products, RHC will work with other MDIs to facilitate national large-scale lending opportunities. It too plans to create a full-service digital banking platform for its customers, offer SBA lending, and offer loan origination that will include mortgages.
Banking analyst William Michael Cunningham says activity in the Black banking sector has risen dramatically since COVID-19 struck three years ago. He says the growth may stem from an improved economic outlook in the Black community, with lower unemployment and more entrepreneurial activity.
“It is likely that we will see more Black banks being proposed and created,” he says. “Those that will be successful will have sound management and significant excess capital. Our analysis indicates that factors such as technology and perceived affinity market base will be less important.”
Also, he says, greater profitability might bring more Black bank openings—for minority banks, investment return potential remains elevated. He pointed to this link that shows how minority bank stocks outperformed the S&P 500.