Banks of all sizes are continuing to direct funds to minority-owned businesses months after the social unrest that followed last year’s death of George Floyd.
JPMorgan Chase just announced plans to invest $40 million in four Black-run banks. Ally Financial, Banner, Citigroup, Texas Capital Bancshares and First Republic Bank joined JPMorgan in providing capital to help fund Broadway Financial’s pending acquisition of the $435.4 million-asset CFBanc in Washington.
Four community banks — First National in Strasburg, Va.; Fauquier Bancorp in Warrenton, Va.; Eagle Financial Services in Berryville, Va.; and Potomac Bancshares in Charles Town, W.Va. — recently created a $1 million fund to provide loans to Black-owned businesses and farms in their markets.
The latest efforts show that the banking industry is still evaluating ways to help underserved markets.
“There’s no doubt we needed to do an assessment on what more we could do as a firm,” said Brian Lamb, global head of diversity and inclusion at the $3.4 trillion-asset JPMorgan. “I think we took the opportunity in the summer of 2020 to really do that assessment internally.”
Though JPMorgan declined to disclose how much it invested in the Black-run banks, the $686 million-asset Carver Bancorp in New York said it received $6 million and the $765 million-asset Liberty Financial in New Orleans brough in $10 million.
The $481.6 million-asset Broadway in Los Angeles disclosed that it will receive $20.2 million from a group of investors that includes six banks after completing its purchase of CFBanc in Washington. The Los Angeles company raised $12.7 million in November after Bank of America, Wells Fargo and Cedars-Sinai Medical Center made an investment.
The $309 million-asset M&F Bancorp in Durham, N.C., did not disclose the size of the investment made by JPMorgan Chase.
Bank of America invested $950,000 in Carver in October.
The equity injections may signal an “inflection point” for underserved markets, Carver CEO Michael Pugh said in a Tuesday press release. “Public and private firms are recognizing the importance of investing in communities of color and institutions that support economic empowerment.”
Smaller banks are finding their own ways to support minority communities.
Discussions among the Virginia and West Virginia banks that led to the creation of the Banking on Diversity Minority Business Fund began about two years ago, spurred by a task force the Virginia Bankers Association created to focus on financial inclusion and diversity, said Scott Harvard, CEO of the $951 million-asset First National.
“We were missing out on a really broad, diverse population, so we started talking about what we could do to bridge that gap,” Harvard said. “The events this summer clearly put a spotlight on things. It got everyone’s attention.”
First National, the $867 million-asset Fauquier, the $1.1 billion-asset Eagle and the $621 million-asset Potomac will use the fund to make interest-free loans to minority-owned enterprises.
“Initially, we talked about a grant program, but we figured we could leverage more money with a loan fund,” Harvard said. Loans also provide a surer foundation for building long-term relationship with minority businesses, he added.
The fund “stands out,” said William Michael Cunningham, the CEO of Creative Investment Research in Washington and an economist who has studied Black-owned banks for three decades. “I think it’s exactly the type of thing we need to see.”
The big banks that have invested in the Black banking sector might have produced more far-reaching results if they had acted in concert, though "it’s hard to question their intentions,” Cunningham said.
JPMorgan, for its part, plans to be a passive investor in the Black-run banks whose shares it has purchased.
“In terms of governance, our intent is much more about capacity building and end-to-end solutions for minority depository institutions,” Lamb said. “It’s a lot less focused on governance.”
The goal ultimately is to give Black-run banks enough tools to serve as long-term, durable financial partners in minority neighborhoods.
“We know there’s been a contraction in this space for the past two decades,” Lamb said. “When these institutions are active in their local communities, those communities have a better chance of growing and thriving.”