For MLK Jr Day: The Struggle of Community Banks
On one hand, I loved learning about the fantastic Maggie Walker. She founded the St Luke’s Penny Savings Bank in 1903 to serve the black community in Richmond, Virginia that could not borrow nor deposit at white-owned banks. With a firm grasp of banking fundamentals, Ms Walker’s bank survived every financial crisis for the next 100 years, including the Great Depression. She died in 1934; her bank remained a black-owned institution until it was merged out in 2010. (Baradaran, page 43)
On the other, I was horrified by the story of the Freedmen’s Bank. Chartered by Congress in March 1865, it promised to provide reliable banking services to newly freed slaves. However, rather than lending a penny to its depositors, the Bank’s white trustees chose to invest the life savings of thousands of families into speculative railroad bonds. When these bonds collapsed in the Panic of 1873, over half of all accumulated black wealth to that point was lost (pgs 23-33). No one was ever prosecuted for defrauding the depositors, and no government insurance ever materialized to repay any of that wealth.
The most sobering part was realizing that the challenges that have overwhelmed hundreds of other community financial institutions also belong to Brooklyn Coop. Baradaran notes the two structural weaknesses of this business model: the low incomes of their depositors and the higher risk of our loan portfolios. Lower incomes mean smaller and more volatile deposits, creating a permanently more expensive infrastructure (pg 88). At the same time, their borrowers’ lower levels of wealth mean higher default rates particularly for business loans (pg 204). That right there is exactly Brooklyn Coop’s ever-present existential threat. I see it surface in a dozen ways every week.
It didn’t feel good to read this history, to think of how our story might end. Maggie Walker is an exception; most every black-owned bank founded since the Civil War sank without a trace. Today, especially since our own Great Financial Crisis of 2008, most community credit unions fail. As far as Brooklyn Coop has come, the odds are still stacked against us.
In December 2018 Brooklyn Coop crossed $25 million in assets and 7,000 members. These are incredible milestones, worth celebrating for sure. But we have to stay focused, stay in the struggle. It is far from over.