Do Black Banks Meet the Needs of African American Families for Affordable Basic Checking Accounts?: A Descriptive Study

Background: In addition to large income and wealth disparities between African American and White families, African Americans are also less likely to have a bank account than Whites. Access to the formal banking system is a critical issue for African American families, as banks are the drivers of wealth creation. Federally-designated African American-owned banks (“black banks”) are designed to meet the needs of the African American community to build the wealth of the African American families and community at large. A major premise of black banks is to maximize the power of black wealth to better serve the black community and address persistent economic inequality. This project provides a descriptive analysis of the affordability of basic checking accounts at black banks.

Methods: This descriptive project compared the most basic checked account features to national account affordability criteria created by the Cities for Financial Empowerment Foundation, called “Bank On” national standards. Researchers gathered data on the population of black banks that offer Federal Deposit Insurance Corporation (FDIC)-insured transaction accounts as of second quarter, 2019 (n=19). Using information from official bank websites, researchers analyzed the features of the least expensive consumer checking account available to all adults age 18 and over. Researchers also used public data to gather bank demographic data in April-June, 2020. Black bank account features were compared to a national sample.

Results: 10% of black banks offer an account that meets all of the Bank On standards. The mean number of standards met is 12.58/18. The standards met least often were the overdraft or non-sufficient funds fees (11%), the minimum opening deposit (27%), and the dormancy or inactivity fees (29%). Black banks outperform the national banks on meeting the standard for minimum opening deposit (27% versus 19%), overdraft fees (11% versus 3%), and online and mobile banking (94% versus 78%). Black banks also have a substantially lower average minimum opening deposit ($53 versus $85).

Implications: Results suggest that while black banks have potential to serve the affordable account needs of their client families, there is still much progress to be made to meet affordability and accessibility standards. On average, about six features of the most basic transaction account need modification to meet account affordability standards. However, results also suggest that, despite their small size on average, black banks have a similar profile to other U.S. banks regarding the percentages that have accounts that meet all of the Bank On standards. These findings must be viewed in the context of the history of black banks, their position in the marketplace, the financial condition of the community they serve, and the support they receive from the federal government. Their ability to offer affordable basic accounts to best serve their customer families is significantly compromised by their low average return on assets, as well as the historic and systemic issues. Policy efforts to strengthen black banks could serve to grow their capacity to offer these types of accounts.