In 1927, the leaders of 14 African-American banks joined together to form the National Bankers Association (NBA), compelled by the realities of the times to find creative ways to advance their communities and banks. While that sense of togetherness remains, today’s NBA has expanded to represent 53 member banks and thrifts owned and focused upon service to other minority groups, including Hispanics, women, Asian Americans, and Native Americans.

Meeting on the heels of Hurricane Katrina last year, NBA leaders discussed the different challenges they face. First were the difficulties of three NBA members whose New Orleans banks were destroyed by the hurricane.  Officers from the three banks worried their institutions would be pulled under by high defaults on flood-damaged properties and the everyday difficulties of running a bank in a town where employees had no homes.

NBA responded by raising money for the member banks’ rank-and-file employees, while individual member banks opened their doors to fellow NBA members, giving their disaster recovery teams a place to operate as well as operational support in the months following the storm.

The helping hand lent to the three New Orleans banks demonstrates that the same sense of camaraderie that led to the founding of the NBA more than 80 years ago still exists today. Unfortunately, many of the challenges facing minority-owned institutions back then remain concerns today, including the need for additional capital to grow.

Minority Markets

The NBA was formed, in part, because minority banks needed a forum in which to share best practices for operating in more risky markets, with less capital, serving customers who make relatively small deposits across relatively more transactions. Those challenges continue to make it difficult for minority-owned banks to operate on par with majority-owned banks, yet the work these institutions do in communities is vitally important.

The trade association also gives voice to the unique challenges facing its members. While some NBA banks operate within higher-income minority markets, many NBA member banks were founded in areas where majority banks historically did not operate or in locations where minorities were underbanked. In these markets, minority banks served African-Americans, Native Americans, Asians, women, and Hispanics, recycling money into the community long before the Community Reinvestment Act (CRA) existed. Historic segregation and gender discrimination created a protected market for minority- owned banks that no longer exists. Yet the challenges of operating in minority markets remain, creating a continuing need for NBA to serve as a voice on Capitol Hill and to represent minority-owned institutions when regulatory issues arise.

Big Competition

In today’s market, minority-owned banks are seeing increased competition from large banks, which are recognizing minority customers as a growth market.

CRA, in particular, has brought many large banks into minority communities. In addition, while minority communities have benefited from the influx of dollars, those commitments have changed the risk profile taken on by some minority institutions.  A minority institution might nurture a local business owner through the riskier start-up period. However, as the business matures, it may outgrow the minority-owned bank’s legal lending limit, or find a larger bank with lower overhead costs able to loan capital to that now much-less-risky business at a lower rate.

One cannot fault majority banks for seizing the best business opportunities within minority communities, but it can be painful for a minority-owned bank to lose the business customer it so carefully nurtured in years past.

Syndicate Answers the Call

In some cases, syndication has provided the answer. For instance, when the National Park Service wanted to turn Atlanta’s Ebenezer Baptist Church, where Martin Luther King, Jr. was pastor, into a historic monument, it offered the church land across the street to build a new sanctuary.

A major bank agreed to provide $8 million in financing to build the new church, if the congregation raised the down payment by a certain date. When the church needed more time, the bank refused to extend the loan commitment and the pastor called upon NBA Chair James Young, president/CEO of Citizens Trust Bank, Atlanta, Ga.

Since Citizens could not hold an $8 million note, Young called NBA members in several other cities and together the banks made a syndicated loan to the church.

Lacking Capital

One of the reasons that many minority banks cannot extend larger loans is that they have issues raising additional capital to fund growth. This is caused in part by the fact that they typically choose to raise their start-up funding from community leaders via private stock sales rather than going through the public stock process.

That public-purpose philosophy underpinning many minority-owned banks contrasts with the current trend of starting banks with the intent to build the institution in size until it comes to the attention of a larger bank willing to pay a much higher price for the bank.

Invest in Us

One of NBA’s long-standing goals has been to help minority institutions raise the capital needed for expansion. We strongly support CRA provisions that encourage majority bank investment in minority banks.

The NBA knows that the Office of the Comptroller of the Currency well understands these issues, and we appreciate the agency’s efforts to clarify CRA rules governing credit for investment in minority banks. The fact that we can advance this issue is another indicator of the benefit of having organizations such as NBA. We would likely not be heard if a single minority-owned bank spoke out, or broke away from a larger banking trade group, in Washington, to visit Capitol Hill to talk about CRA investment in minority-owned banks.

As an organization, we will continue to focus on trying to find friends in Congress and on persuading regulators of the value of minority-owned institutions for minority communities. We believe that other regulatory agencies will follow the OCC’s lead in respecting minority banks rather than penalizing them for the different markets that they serve.

Making the Best of a Challenge

We operate in many communities, including some that are the last to be developed and the first to feel a weakening economy, and yet we manage to serve these communities, to stay in business, and to thrive. Moreover, judging from what we share with each other at our annual NBA meeting, minority banks have many lessons to impart about what works in serving our markets profitably. Through CRA investments in NBA member banks, majority banks will be well poised to tap into the extensive knowledge base of our members.