Just a year ago the future of Chicago’s two black-owned banks—Illinois Service Federal and Seaway Bank and Trust—looked grim. Both banks were under consent orders from federal regulators to raise capital after years of shrinking income brought them to the brink of failure. They badly needed an influx of new deposits to continue making loans, and millions of dollars in investment to keep shareholders from bailing.
Since the police shootings of Alton Sterling and Philando Castile earlier this month, a #BankBlack movement has picked up steam. Prominent entertainers including Usher, T.I., and Killer Mike have urged African-Americans to move their money from large, commercial banks into black-owned financial institutions.
The push has had immediate impact in Chicago. ISF has received more than $4 million in new deposits since the beginning of the month, according to bank officials. Seaway customers opened 450 new accounts and deposited $1.6 million in the same timespan.
“We receive phone calls from people in areas that don’t have a minority owned bank,” says Seaway’s chief retail banking officer Daryl Newell. “We’ve been pleasantly surprised by the outpouring of support.”
The influx of new deposits means Seaway will be able to make more loans to individuals and businesses, which will generate the interest that becomes income for the bank.
Still, the upsurge of deposits and support may not be enough to guarantee the long-term stability of one of Chicago’s last black-owned banks.
Whereas Bronzeville-based ISF’s fate was secured in May when a Ghanaian family invested $9 million in the institution and became its majority shareholder, Chatham-based Seaway is still hoping to attract enough new investment to stay afloat. In June, Crain’s Chicago Business reported that Seaway—the third-largest black-owned bank in the country—had suffered $16 million in losses in the previous year-plus.
Newell won’t say exactly how much money Seaway needs to become “adequately capitalized,” and therefore not at risk of being unable to return customer deposits. But, he insists that the income from new loans (made possible by the deposit surge) will help shorten the capital gap the bank still needs to bridge to get out from under its consent order and regain solid financial footing.
Growing deposits is the number one marker of a bank’s health, Newell argued. They indicate that the bank is vital and supported by its community, making it more attractive to investors like Groupe Nduom, the company that rescued ISF.
“Savvy investors are always going to be looking at the bank in terms of deposits,” Newell says. “Deposits increase the value of the bank.”
Other features that could be attractive to investors: Seaway is part of a network of more than 10,000 ATMs and offers a full range of consumer services including online banking and bill pay. Seaway is also in control of the lucrative currency exchange business at O’Hare and Midway airports.
Black-owned banks were once the economic backbone of the black community, with more than 130 institutions in the U.S. They were especially vital to the economy of black neighborhoods during the Great Migration, when African-Americans couldn’t get business or home loans from white-owned banks.
But these small neighborhood banks have been in sharp decline since passage of the Community Reinvestment Act in 1977. As the Chicago Reporter recently detailed, the federal legislation that outlawed financial redlining—which had denied African Americans loans in white-owned banks—also incentivized commercial banks to extend services to underserved neighborhoods. In some cases this created intense competition and led to a sharp decline in the number of black-owned financial institutions.
There are 24 black-owned banks left in the U.S. today, and a handful of black-owned credit unions—including the South Side Community Federal Credit Union in Chicago.
Black-owned banks were also hard hit during the 2008 subprime mortgage crisis and subsequent recession. This contributed to the growth of so-called “banking deserts”—areas with no commercial financial services and a proliferation of check-cashers and payday lenders. Between 2009 and 2011, half of Illinois’s black population had little to no access to banks.
The #BankBlack movement, Newell says, “is nothing but positive for every blank bank across the country.”