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F o r R e l e a s e on D e l i v e r y
M o n d a y , December 2 8 , 1970
2:30 p.m., E.S.T.
THE BLACK BANKS
An A s s e s s m e n t
of
P e r f o r m a n c e and
Prospects
A P a p e r P r e s e n t e d By
Andrew F . B r i m m e r
Member
Board o f Governors o f t h e
F e d e r a l Reserve System
Before a J o i n t
Session of
the
1970 A n n u a l M e e t i n g s
of
The A m e r i c a n F i n a n c e A s s o c i a t i o n
and
The A m e r i c a n Economic A s s o c i a t i o n
Cobo H a l l
D e t r o i t , Michigan
December 2 8 , 1970
THE BLACK BANKS
An A s s e s s m e n t
Of
Performance and
Prospects
By
Andrew F .
At
primarily
t h e end o f
by Negroes
the process of
so a l m o s t
the l a s t
six
a n d two o f
t h i s year.
one-half
of
these
S e v e r a l o t h e r s were
t h e s e had opened f o r
I n 1963,
controlled
in
business
by
t h e r e w e r e 11 b l a c k - o w n e d
institutions
have been s t a r t e d
in
years.~^
These new b a n k s - been l a u n c h e d w i t h
in
t h e r e w e r e 22 b a n k s owned o r
the U n i t e d S t a t e s .
formation,
t h e end o f A u g u s t o f
banks,
in
1969,
Brimmer"
especially
the s p e c i f i c
the b l a c k community.
aim of
I n a number o f
* Member, B o a r d o f G o v e r n o r s
of
those
formed r e c e n t l y
f o s t e r i n g economic
locations
have
development
around the
the F e d e r a l Reserve
--
country,
System.
I am g r a t e f u l t o s e v e r a l members o f t h e B o a r d ' s s t a f f f o r
a s s i s t a n c e i n the p r e p a r a t i o n of t h i s paper.
M r . B r e n t o n C. L e a v i t t
was r e s p o n s i b l e f o r t h e r e v i e w o f t h e s u p e r v i s o r y e x a m i n a t i o n r e p o r t s
on t h e b l a c k b a n k s .
M r . H e n r y S. T e r r e l l and M i s s H a r r i e t t H a r p e r
a s s i s t e d w i t h t h e a n a l y s i s o f t h e b a n k s 1 a s s e t s , l i a b i l i t i e s , and
operating results.
M i s s J a c q u e l i n e M c D a n i e l was r e s p o n s i b l e f o r t h e
c o m p u t e r p r o g r a m m i n g n e c e s s a r y t o o b t a i n t h e d a t a on w h i c h t h e p a p e r
r e s t s so h e a v i l y .
1/
The b a n k s a r e l i s t e d
year founded.
m
Table
1, a t t a c h e d ,
showing l o c a t i o n
and
-2numerous g r o u p s a r e p l a n n i n g
t h e same o b j e c t i v e .
Federal
Moreover,
channel p u b l i c
i n urban
corporations
a number o f
deposits
to
expected
with
strong
and
support
as w e l l as f r o m many
programs have been s t a r t e d
t o e n a b l e them t o
public
to
expand
areas.—^
t h i s movement a n d t h e
economic development
to undertake,
systematic
institutions
from both State
receiving
the b l a c k banks
G i v e n t h e tempo o f
important
similar
are being sought
a n d t h e movement i s
b a n k s and o t h e r
officials.
lending
Charters
supervisors,
from large
to e s t a b l i s h
appraisal
it
r o l e which
appears v i t a l
be made o f
enormously
the b l a c k banks
are
t h a t an o b j e c t i v e
and
the capacity
of
these
institutions
3
to perform t h i s
The a n a l y s i s
general
task,
This
paper
has been c a r r i e d
conclusions
out
is devoted
t o such an assessment.—
in considerable
c a n be s u m m a r i z e d
detail,
but
the
briefly:
- B l a c k b a n k s t r y i n g t o do b u s i n e s s i n u r b a n g h e t t o s
appear to operate a t a s u b s t a n t i a l disadvantage
( e v e n when c o m p a r e d w i t h o t h e r b a n k s o f t h e same
s i z e ) i n terms o f b o t h o p e r a t i n g c o s t s and e f f i ciency.
For example, t h e m a r g i n o f income over
e x p e n s e s i n t h e b l a c k b a n k s a p p e a r s t o be o n e - t h i r d
t o o n e - h a l f t h a t f o r banks i n t h e c o u n t r y a t l a r g e .
2!
F o r e x a m p l e , see " A n A d d r e s s " by D r . C h a r l s W a l k e r , Under
S e c r e t a r y o f t h e U. S. T r e a s u r y , b e f o r e t h e 4 3 r d A n n u a l C o n v e n t i o n
o f the N a t i o n a l Bankers A s s o c i a t i o n , S t . L o u i s , M i s s o u r i , October 16,
1970.
3/
I n two p r e v i o u s s t u d i e s , I a l s o e x a m i n e d t h e p e r f o r m a n c e o f t h e
b l a c k banks:
( 1 ) " T h e N e g r o i n t h e N a t i o n a l E c o n o m y , " i n J o h n P.
D a v i s ( E d . ) , The A m e r i c a n N e g r o R e f e r e n c e B o o k , P r e n t i c e - H a l l , 1 9 6 6 ,
Ch. 5 , p p . 2 5 1 - 3 3 6 , e s p e c i a l l y p p . 2 9 6 - 3 0 7 .
( 2 ) "The B a n k i n g System
and Urban Economic D e v e l o p m e n t , " p r e s e n t e d b e f o r e a j o i n t s e s s i o n o f
t h e 1968 A n n u a l M e e t i n g s o f t h e A m e r i c a n R e a l E s t a t e and U r b a n
Economics A s s o c i a t i o n and t h e A m e r i c a n F i n a n c e A s s o c i a t i o n , C h i c a g o ,
I l l i n o i s , December 2 8 , 1 9 6 8 .
-3The c o s t s o f h a n d l i n g a g i v e n v o l u m e o f d e p o s i t s
i n t h e b l a c k b a n k s seem t o r u n o n e - q u a r t e r t o
t w o - f i f t h s higher than for other i n s t i t u t i o n s .
- The b l a c k b a n k s a p p e a r t o be a b o u t o n e - q u a r t e r
t o o n e - t h i r d as p r o f i t a b l e as t h e n a t i o n ' s
banks g e n e r a l l y .
Aside from the h i g h o p e r a t i n g
c o s t s and l o w e f f i c i e n c y , t h e b l a c k b a n k s e x p e rience s u b s t a n t i a l l y greater r e l a t i v e loan
losses.
I n f a c t , loan l o s s r a t e s a t the b l a c k
b a n k s seem t o be t w o - t o - t h r e e t i m e s as h i g h a s
a t b a n k s i n t h e c o u n t r y as a w h o l e .
- This experience, of course, i s i n t i m a t e l y
r e l a t e d to the inherent r i s k of doing business
i n the urban g h e t t o :
t h e h i g h unemployment
r a t e s , low f a m i l y incomes, the h i g h f a i l u r e
r a t e s among s m a l l b u s i n e s s e s (compounded b y
h i g h c r i m e r a t e s ) make t h e g h e t t o a n e x t r e m e l y
r i s k y p l a c e f o r s m a l l b a n k s t o l e n d money.
- A t t h e same t i m e , t h e b l a c k banks a r e h a n d i c a p p e d b y a s e v e r e s h o r t a g e o f management
talent.
The r e a s o n f o r t h i s s h o r t a g e i s w i d e l y
known:
b e c a u s e o f r a c i a l d i s c r i m i n a t i o n and
s e g r e g a t i o n , Negroes h i s t o r i c a l l y were k e p t o u t
o f t h e economic m a i n s t r e a m and t h u s l a c k e d t h e
i n c e n t i v e s to acquire a mastery of s k i l l s i n
e c o n o m i c s , f i n a n c e , a c c o u n t i n g , and b u s i n e s s
a d m i n i s t r a t i o n on w h i c h t h e management o f b a n k s
depends.
While e f f o r t s are being accelerated
t o expand t h e s u p p l y o f b l a c k b a n k e r s , t h e
s i t u a t i o n r e m a i n s c r i t i c a l , and no s i g n i f i c a n t
improvement appears l i k e l y i n the s h o r t r u n
u n l e s s t h e b l a c k banks become more w i l l i n g t o
employ a g r e a t e r p r o p o r t i o n o f w h i t e w o r k e r s .
-
Because o f t h i s c o m b i n a t i o n o f h a n d i c a p s , t h e
b l a c k b a n k s as a g r o u p a p p e a r t o p o s s e s s v e r y
l i t t l e p o t e n t i a l as i n s t r u m e n t s o f u r b a n e c o nomic d e v e l o p m e n t .
A few o f t h e b a n k s have
e x p e r i e n c e d n o t i c e a b l e success m t a i l o r i n g
t h e i r l e n d i n g p r a c t i c e s so as t o l e n d a s i g n i f i c a n t p r o p o r t i o n of t h e i r resources to l o c a l
borrowers - - w h i l e k e e p i n g l o s s r a t e s under
r e a s o n a b l y good c o n t r o l .
I n c o n t r a s t , a number
o f t h e b a n k s have been a g g r e s s i v e l e n d e r s m
t h e i r l o c a l c o m m u n i t i e s , and v i r t u a l l y a l l o f
them have e x p e r i e n c e d s i z a b l e l o s s e s .
In fact,
-4s e v e r a l o f t h e banks i n t h i s g r o u p have e a r n e d
l i t t l e o r no n e t p r o f i t i n t h e l a s t f o u r o r f i v e
y e a r s ; a few o f t h e m h a v e j u s t a b o u t e x h a u s t e d
t h e i r o r i g i n a l c a p i t a l - - w h i c h had t o be
r e p l a c e d a t much h i g h e r c o s t a n d w i t h much
g r e a t e r d i f f i c u l t y , i n c l u d i n g the n e c e s s i t y to
seek c a p i t a l funds o u t s i d e the b l a c k community.
-
On t h e w h o l e , h o w e v e r , m o s t o f t h e b l a c k b a n k s
have f o u n d i t w i s e t o a v o i d c o n c e n t r a t i n g t h e i r
l o a n s and i n v e s t m e n t s m the g h e t t o .
In general,
the p r o p o r t i o n of t h e i r t o t a l resources repres e n t e d by t o t a l l o a n s i s s u b s t a n t i a l l y b e l o w t h a t
f o r b a n k s i n t h e n a t i o n as a w h o l e , a n d t h e i r
r e l a t i v e h o l d i n g s o f U. S. G o v e r n m e n t s e c u r i t i e s
a r e much h i g h e r .
I n f a c t , t h e b l a c k b a n k s as a
g r o u p seem t o c h a n n e l as much as o n e - f i f t h o f
t h e i r t o t a l loans to borrowers outside t h e i r
l o c a l c o m m u n i t i e s ; f o r s e v e r a l o f them t h e p r o p o r t i o n i s m the o n e - t h i r d to t w o - f i f t h s range
- - a n d f o r one f a i r l y l o n g - e s t a b l i s h e d b a n k i t
While part of t h i s
i s as h i g h as o n e - h a l f .
e x p o r t o f f u n d s may be a r e f l e c t i o n o f t h e n o r m a l
q u e s t f o r d i v e r s i f i c a t i o n , i t a l s o seems t o
r e f l e c t the e x c e p t i o n a l l y high r i s k s of lending
i n the g h e t t o .
-
From t h i s a s s e s s m e n t o f t h e p e r f o r m a n c e a n d
p r o s p e c t s f o r b l a c k b a n k s , I am c o n v i n c e d t h a t
the m u l t i p l i c a t i o n o f such i n s t i t u t i o n s s h o u l d
n o t be e n c o u r a g e d i n t h e b e l i e f t h a t t h e y c a n
make a m a j o r c o n t r i b u t i o n t o t h e f i n a n c i n g o f
economic development m the b l a c k community.
I n s t e a d , I am c o n v i n c e d t h a t a n a l t e r n a t i v e
f i n a n c i n g mechanism ( t h a t I suggested e a r l i e r )
w o u l d be much more p r o m i s i n g :
i t may be p o s s i b l e
to achieve a s u b s t a n t i a l increase i n the a v a i l a b i l i t y o f r i s k c a p i t a l i n t h e g h e t t o by a l l o w i n g
l a r g e c o m m e r c i a l banks t o expand t h e i r a c q u i s i t i o n
o f e q u i t y s e c u r i t i e s - - as t h e y c a n do now i n
t h e i r operations abroad.
- Having expressed doubt about the p o t e n t i a l of
b l a c k b a n k s as i n s t r u m e n t s o f e c o n o m i c d e v e l o p m e n t , I do r e c o g n i z e t h a t some members o f t h e
b l a c k c o m m u n i t y may w i s h t o e n c o u r a g e them i n
any case:
t h e y may be a s o u r c e o f r a c i a l p r i d e ,
a n d t h e y may a l s o r e n d e r some m a r g i n a l - although high cost -- f i n a n c i a l services.
Under
-5t h o s e c i r c u m s t a n c e s , most o f t h e b l a c k b a n k s m i g h t
be v i e w e d p r i m a r i l y as o r n a m e n t s r a t h e r t h a n as
v i t a l i n s t r u m e n t s o f economic d e v e l o p m e n t .
E x p r e s s e d a l t e r n a t i v e l y , t h e y m i g h t be compared t o
small, high-cost specialty
shops - - c a t e r i n g t o a
l i m i t e d segment o f t h e m a r k e t - - r a t h e r t h a n t o
the l a r g e - s c a l e department stores o f f e r i n g a f u l l
range o f s e r v i c e s to the community a t l a r g e .
B l a c k Banks a n d t h e B a n k i n g S y s t e m :
At
t h e end o f
$259 m i l l i o n a n d t o t a l
attached.)
Thus,
1969,
in
steady
assets,
the n a t i o n .
improvement;
and i n
For
1958,
1962 t h e i r
to
founded b e f o r e
1930' s,
the 1940's,
c h a r t e r was i s s u e d t o
beginnings
deposits
insured
reflect
total
the
black
institutions.
the 1950's.
f o r m a b l a c k bank i n 1 9 6 3 ,
c o m m e r c i a l b a n k s c a n be t r a c e d b a c k t o
commercial
cent.
the 1920's,
new movement.
total
did
t h e more r a p i d e x p a n s i o n o f
t h e end o f
of
2,
of
they held 0.019 per cent of
a n d none m
o f an e s s e n t i a l l y
per cent
of a l l
chartered
assets
(See T a b l e
these modest p r o p o r t i o n s
the r e c e n t l y
t h e banks were
two i n
$230 m i l l i o n .
s h a r e was 0 . 0 2 6 p e r
the most p a r t ,
b a n k s c a n be t r a c e d
total
However,
in
of
share represented 0.049
a s s e t s and 0 . 0 5 3 p e r c e n t o f
banks
t h e 22 b l a c k b a n k s had t o t a l
deposits
their
Overview
it
one i n
Six
of
the
So, when a
represented
Actually,
the
Negro-owned
1 8 8 8 , a n d by t h e e a r l y
1930's,
y
134 b a n k s had b e e n e s t a b l i s h e d ,
all
of
these
f a i l e d over
primarily
the y e a r s ,
m
the South.
and t h e d e p r e s s i o n o f
Virtually
the
1930fs
4/
The h i s t o r y o f Negroes m b a n k i n g i s an e x t r e m e l y f a s c i n a t i n g o n e .
Even b e f o r e t h e C i v i l War, b l a c k p e o p l e made e f f o r t s t o l a u n c h b a n k s .
The m o s t a m b i t i o u s u n d e r t a k i n g was t h e F r e e d m e n ' s S a v i n g s Bank ctnd
T r u s t Company, s p o n s o r e d by t h e F r e e d m e n ' s B u r e a u o f t h e F e d e r a l G o v e r n ment.
B e f o r e t h e b a n k f a i l e d m t h e d e p r e s s i o n o f 1 8 7 4 , i t had e s t a b l i s h e d b r a n c h e s i n 36 c i t i e s and had a c c u m u l a t e d $57 m i l l i o n m d e p o s i t s .
The f a i l u r e o f t h e b a n k g r e a t l y damaged t h e c o n f i d e n c e o f d e p o s i t o r s Ln
Negro-owned i n s t i t u t i o n s .
See Gunnar M y r d a l , An A m e r i c a n D i l e m m a , New
York:
H a r p e r 6c B r o s . , 1 9 4 4 , V o l . I , p . 3 1 4 .
-6took a p a r t i c u l a r l y
heavy t o l l . —
r e c e n t movement, most o f
which obtained
their
I n the e a r l y years of
t h e new i n s t i t u t i o n s
charters
as a r e s u l t
policies
f o l l o w e d by t h e C o m p t r o l l e r
1960!s.
More r e c e n t l y ,
f o u n d e d on t h e b a s i s
cases a l s o r e f l e c t s
t h a t most o f
to
were n a t i o n a l
t h e more
the Currency
the
banks
liberal
since
the
of State charters
more l i b e r a l
--
whose i s s u a n c e
policies.
It
i n most
s h o u l d a l s o be n o t e d
in large
northern
w i t h a heavy c o n c e n t r a t i o n o f Negroes - -
location
early
a number o f b l a c k - o w n e d b a n k s h a v e b e e n
t h e new b a n k s h a v e b e e n e s t a b l i s h e d
and w e s t e r n c i t i e s
contrast
of
of
the most
of
the older
institutions
in
primarily
in
the
South.
Other data
position
of
i n Table
$10 m i l l i o n
invested
all
cent
further
light
large,
in
the size of
of a l l
The
the t y p i c a l
the former having average deposits
1969 c o m p a r e d w i t h $33 m i l l i o n
for
i n b l a c k banks r e p r e s e n t e d 0 . 0 4 8 per c e n t
banks.
on t h e
t h e b l a c k banks i n t h e b a n k i n g system.
b l a c k bank i s a b o u t o n e - t h i r d
country at
2 cast
These i n s t i t u t i o n s
workers
employed i n
provided jobs
relative
typical
bank i n
of
roughly
the l a t t e r .
of
Capital
the t o t a l
f o r about 0.092
insured commercial
the
for
per
6/
banks.""
5/
A number o f t h e b l a c k b a n k s w e r e b o u g h t b y w h i t e p e o p l e ( e i t h e r
b e c a u s e o w n e r s c o u l d f i n d no o t h e r b u y e r s o r b e c a u s e t h e y g o t i n t o
s e r i o u s f i n a n c i a l d i f f i c u l t i e s and bank s u p e r v i s o r y a u t h o r i t i e s
f o r c e d a s a l e ) and were t h u s " l o s t " t o t h e b l a c k community.
Recent
e x a m p l e s a r e C i t i z e n s a n d S o u t h e r n m P h i l a d e l p h i a , P a . , and Crown
S a v i n g s B a n k , N e w p o r t News, V a .
6/
By c o m p a r i s o n , m 1 9 6 6 , t h e r e w e r e a b o u t 2 0 , 0 0 0 N e g r o e s e m p l o y e d
m a l l commercial banks, r e p r e s e n t i n g about 4 . 1 per cent of t o t a l
employment o f 4 7 3 , 0 0 0 .
See Andrew F . B r i m m e r , " E m p l o y m e n t P a t t e r n s
and t h e Quest f o r E q u a l O p p o r t u n i t y i n B a n k i n g , " a paper p r e s e n t e d
b e f o r e a C o n f e r e n c e on Bank E m p l o y m e n t P r a c t i c e s , s p o n s o r e d by t h e
U. S. T r e a s u r y D e p a r t m e n t a n d t h e M i c h i g a n Human R e l a t i o n s C o m m i s s i o n ,
L a n s i n g , M i c h i g a n , May 2 2 , 1 9 6 8 , T a b l e 2 .
-7T h e r e w e r e a b o u t 42 e m p l o y e e s
with
i n the
67 i n t h e a v e r a g e b a n k m
typical
the c o u n t r y a t
t h e a v e r a g e b l a c k b a n k was a p p r o x i m a t e l y
n a t i o n a l average - it
total
I n 1969,
one-third
as l a r g e
in
Thus,
l o a n s was somewhat h i g h e r
share o f
to i n d i v i d u a l s
while
the size of
total
of
Their
--
of
cent
(0.067 per cent)
of
share
and
and c o m m e r c i a l a n d i n d u s t r i a l
( 0 . 0 3 5 per c e n t and 0 . 0 3 3 per
the
deposits
t h e number
insured commercial banks.
of r e a l estate
was somewhat s m a l l e r
terms
of
compared
t h e b l a c k banks h e l d a b o u t 0.045 per
loans o u t s t a n d i n g a t
loans
large.
when m e a s u r e d on t h e b a s i s
was more t h a n t h r e e - f i f t h s
employees.
b l a c k bank
their
loans
cent,
respectively).
The m o d e s t p o s i t i o n o f
when c o m p a r e d w i t h
t h e r o l e Negroes p l a y
As shown i n T a b l e 2 ,
population,
the b l a c k banks i s a l s o
Negroes c o n s t i t u t e d
12 p e r c e n t o f
the labor
i n the n a t i o n a l
11 p e r c e n t o f
force,
that
i n 1967 Negroes owned a b o u t
a c c u m u l a t e d by A m e r i c a n h o u s e h o l d s .
equity
i n homes, b u s i n e s s e s ,
cent),
while
their
share of
ment b o n d s , a n d c o r p o r a t e
The f a c t
deposits
total
and t h e y earned
about
holding of
bank d e p o s i t s )
Furthermore,
2 per cent o f
share of
financial
assets
financial
accumulated
only 0.053 per cent of a l l
s h o u l d be e s p e c i a l l y
noted.
--
0.7
1 . 1 per c e n t
institutions
is
assets
(2.5
(bank d e p o s i t s ,
was much s m a l l e r
N e g r o e s owned a b o u t
it
the
and f a r m s was somewhat l a r g e r
stocks)
i n b a n k s and o t h e r
b l a c k banks1
that
Their
economy.
the
6 p e r c e n t o f a g g r e g a t e money income i n 1 9 6 9 .
estimated
highlighted
Govern-
per
of
per
cent.
the
total
(compared w i t h
insured
the
commercial
-8In conclusion,
fall
i n the Negro's
it
n o t as s t r i k i n g
banking
that
the black
Costs and O p e r a t i n g E f f i c i e n c y
this
i n Black
operations
in
i n f o r m a t i o n was a v a i l a b l e
December 3 1 ,
banks
1969.
(including
for
Of t h i s
five
19 o f
number,
national
13 w e r e S t a t e - c h a r t e r e d
this
Nevertheless,
in this
In this
part
of
of
of
the
the
t h e c o s t s and e f f i c i e n c y
part
of
the
of
member b a n k s o f
inquiry,
the
detailed
t h e 22 b l a c k b a n k s as
of
s i x w e r e F e d e r a l R e s e r v e member
a n d one S t a t e - c h a r t e r e d b a n k ) ,
nonmembers.
it
overview
the performance
t h e b l a c k banks compared w i t h a l l
F e d e r a l Reserve S y s t e m . F o r
assets
Banks
general background,
t h e o b j e c t i v e was t o a s s e s s
short
proceeds.
b l a c k b a n k s has b e e n e x a m i n e d i n d e t a i l .
analysis,
is a sizable
community's ownership
The b e n c h m a r k s s k e t c h e d
i n m i n d as t h e a n a l y s i s
Against
there
i n the United States.
as t h e gap i n
institutions.
s h o u l d be k e p t
clear
s h a r e o f a g g r e g a t e money i n c o m e a n d
a c c u m u l a t e d by h o u s e h o l d s
is
is
Because o f
t h e need t o
and
hold
nonearning cash r e s e r v e s ,
F e d e r a l R e s e r v e member b a n k s a r e
faced
w i t h an a d d i t i o n a l
affecting
seemed
preferable
ship.
--
to d i s t i n g u i s h
As a l r e a d y
ranging
factor
their
behavior,
among them on t h e b a s i s
indicated,
from $1.4 m i l l i o n
of
and i t
S y s t e m member-
t h e b l a c k banks a r e
small
to $36.7 m i l l i o n
total
of
institutions
deposits
in
7/
I n c a r r y i n g o u t t h e s t u d y , c o n s i d e r a b l e u s e was made o f s t a t i s t i c a l i n f o r m a t i o n c o l l e c t e d by F e d e r a l b a n k s u p e r v i s o r y a g e n c i e s i n
t h e C o n s o l i d a t e d R e p o r t o f C o n d i t i o n f o r December 3 1 , 1 9 6 9 .
This
i s t h e " C a l l R e p o r t " s u b m i t t e d e a c h q u a r t e r by a l l i n s u r e d b a n k s .
-91969.
For
this
reason,
t h e banks w e r e g r o u p e d by s i z e o f
( u n d e r $10 m i l l i o n a n d $ 1 0 - 5 0 m i l l i o n
all
member b a n k s ) .
--
deposits
a n d o v e r $50 m i l l i o n
Information relating
t o c o s t s and
for
operating
8/
efficiency
is
shown i n T a b l e s
B l a c k banks
trying
to operate at a s u b s t a n t i a l
other
banks o f
t o do b u s i n e s s
disadvantage
t h e same s i z e ) .
b a n k s a b s o r b e d 93 p e r c e n t o f
cent
3 and 4 .
f o r a l l member b a n k s ,
u n d e r $50 m i l l i o n .
Thus,
as w e l l as f o r
b l a c k b a n k s was a b o u t o n e - t h i r d
the country a t
large.
operating
income - -
the margin of
costs
t o $15 m i l l i o n ,
$50 m i l l i o n .
billion
of
that
for
Thus,
o f member b a n k s '
under
0.346 per c e n t ,
per
1969
amounted
Federal
member b a n k s ,
b e l o w $50 m i l l i o n ,
had e x p e n s e s e q u a l
operating costs.
$50 m i l l i o n ,
and t h e i r
Reserve
under
$351
$66.4 b i l l i o n
at
and $230 m i l l i o n
the b l a c k banks, w i t h 0.065 per cent
member b a n k d e p o s i t s ,
deposits
In
f o r member b a n k s w i t h d e p o s i t s
deposits at a l l
to about 0.077
of
per
at
total
cent
Compared w i t h member banks
the b l a c k banks'
the
disadvantage
i n b l a c k banks
for a l l
in
serving
These o p e r a t i n g e x p e n s e s w e r e a s s o c i a t e d w i t h
member b a n k s w i t h d e p o s i t s
b l a c k banks.
deposits
banks
This r e l a t i v e
compared w i t h $ 1 9 . 5 b i l l i o n
total
black
income o v e r e x p e n s e s
o p e r a t i n g expenses
member b a n k s and $ 3 . 4 b i l l i o n
with
78 p e r
total
c a n a l s o be t r a c e d i n s e v e r a l m e a s u r e s o f e f f i c i e n c y .
( a s shown i n T a b l e 4 ) ,
in
against
those w i t h
to one-half
(See T a b l e 3 . )
appear
( e v e n when compared
I n 1969,
operating
i n urban ghettos
with
share of d e p o s i t s
s h a r e o f o p e r a t i n g e x p e n s e s was
was
0.441
cent.
8/
P r i n c i p a l a s s e t s and l i a b i l i t i e s o f b l a c k banks as o f December 3 1 ,
1 9 6 9 , a r e shown i n c o n s i d e r a b l e d e t a i l f o r e a c h b a n k i n T a b l e s 12 and
13.
These d a t a a r e t a k e n f r o m t h a t p a r t o f t h e R e p o r t o f C o n d i t i o n
w
h
i
c
h
e a c h bank must p u b l i s h i n d i v i d u a l l y .
-10Expressed d i f f e r e n t l y ,
o p e r a t i n g expenses were e q u a l
in contrast
and a b o u t
Thus,
t o 5.6 per cent
5 . 0 per cent
the costs
for
similar
to 6.5 per cent
for
to
two-fifths
than other
in considerably
of
In
higher
institutions
labor
costs
t h e o p e r a t i n g expenses
m
u n d e r $50
than for
banks
million.
in black
other
labor
institutions,
were a p p r o x i m a t e l y
of
m
similar
size.
This
f o r a g i v e n volume o f
accounted
black banks,
for
almost
compared
one-
with
for
costs
but
officers
in a l l
m
and employees added
member b a n k s
the $10-50 m i l l i o n
t h e same.
Overhead c o s t s
than they d i d
at
s i z e group the
(including
o p e r a t i n g expenses a t b l a c k banks
a t member b a n k s
(11.6
per c e n t and 1 0 . 0 per c e n t ,
although
t h e p r o p o r t i o n was s l i g h t l y
deposits
under
$10
single
category
F e d e r a l R e s e r v e member b a n k - --
etc.)
absorbed
than
respectively),
banks
with
million.
The l a r g e s t
savings deposits
lower at a l l
ratios
occupancy
a somewhat
share o f
and f i x t u r e s ,
of
proportion-
furniture,
larger
results
banking
expenses o f bank p r e m i s e s ,
banks
banks
F e d e r a l R e s e r v e member b a n k s r e g a r d l e s s
Fringe benefits
a t e l y more t o
black
deposits,
b l a c k b a n k s seem t o be much more
1 9 6 9 , wages a n d s a l a r i e s
around one-quarter
size.
higher
banks'
size.
amply s t a f f e d
third
total
F e d e r a l R e s e r v e member
those w i t h d e p o s i t s
As m e n t i o n e d a b o v e ,
activity.
all
of
o f h a n d l i n g a g i v e n volume o f d e p o s i t s
seem t o r u n o n e - q u a r t e r
of
as shown i n T a b l e 3 , b l a c k
accounts
that
for
o f expenses
is,
interest
a much s m a l l e r
for
the
average
p a i d on t i m e
proportion
of
and
-11operating
costs at
b l a c k banks
b l a c k b a n k s as a g r o u p ,
than at
other
as shown i n T a b l e 3 ,
u n d e r 30 p e r c e n t compared w i t h 40 p e r c e n t
and a s l i g h t l y
higher
u n d e r $50 m i l l i o n .
somewhat l o w e r
percentage
rates
cent
for
t o owners o f
just
that
member
T h e r e was l i t t l e
the h i g h market r a t e s
negotiable
certificates
member b a n k s w i t h d e p o s i t s
3.5 per cent - -
compared w i t h 3 . 1
per
v a r i a t i o n among b l a c k
(CDfs),
cost
funds
--
o f money - -
still
--
rose sharply
and s a v i n g s d e p o s i t s .
is,
somewhat h i g h e r
interest
rate
to a t t r a c t
the e x t r a
t o 2-2% t i m e s
cost of
--
than f o r black
especially
funds,
obtaining
was
banks.
the
and t h e
the m a r g i n a l
by o n e - t h i r d
For
large
marginal
additional
p a i d on
time
cost of
money
to one-half
above
the
paid.
In other words,
from the p o i n t
b l a c k b a n k s p a i d somewhat l o w e r r a t e s
at
the average r a t e
the average r a t e
Fcr b l a c k banks,
c l i m b e d much more m o d e r a t e l y
average
denomination,
o v e r $50 m i l l i o n was 4 . 7 p e r c e n t .
bid aggressively
that
However,
the average r a t e
I n 1 9 6 9 , most F e d e r a l R e s e r v e member banks - institutions
deposits
the
member b a n k s w i t h d e p o s i t s b e l o w $50 m i l l i o n ,
about
pay
member b a n k s ,
p a i d on l a r g e
of deposit
deposits
b l a c k banks
banks by s i z e or F e d e r a l Reserve membership s t a t u s .
reflecting
banks
t i m e and s a v i n g s
For a l l
p a i d i n 1969 was 4 . 4 p e r c e n t
b l a c k banks.
t h e r a t i o was
for a l l
suggest
t h a n do F e d e r a l R e s e r v e member b a n k s .
average r a t e
For
f o r member b a n k s w i t h
The f i g u r e s a l s o
interest
institutions.
of view of d e p o s i t o r s ,
on t h e a v e r a g e and
raised
the
-12their
offered rates
under
the
tions
r e p r e s e n t e d a somewhat l e s s a d v a n t a g e o u s
deposit
impact
to a lesser
of monetary r e s t r a i n t .
savings,
compared w i t h o t h e r
In conclusion,
costs
a major
Another major
on l o a n s
share a r i s e s
i n c u r r e d by t h e s e
i n some d e t a i l
below.
10) a t t r a c t
i n the
banks o f
share o f
the black
institu-
place
i n which
similar
size.
the higher
form of
roughly
But
public
However,
proportion
for a l l
accounts.
volume o f
a situation
of
it
appears
larger
that
losses
discussed
( a s shown
their
total
t h a n do a l l
b l a c k banks
high
in
deposits
Federal
the p r o p o r t i o n
the time accounts a t
proportion of
small,
time d e p o s i t s .
invest
t h e b l a c k banks
institutions
i n major
r a t e and p u b l i c
9/
successful.—
their
individual
black
savings
They t e n d t o h a v e
l i q u i d balances.
(and e s p e c i a l l y
cities)
of
and t h e y h a v e b e e n
the r e l a t i v e l y
only
and
On t h e o t h e r
have s o u g h t a c t i v e l y
demand d e p o s i t s ,
Yet,
several
is
below
t h e l a r g e d e n o m i n a t i o n C D ' s i n w h i c h many c o r p o r a t e
treasurers
some o f
--
to
operating
f o r member b a n k s w i t h d e p o s i t s
a c c o u n t s and c o n s u m e r - t y p e
a few o f
institutions
t i m e and s a v i n g s a c c o u n t s
include a far
small
from the s i g n i f i c a n t
a much l a r g e r
t h e same as t h a t
$50 m i l l i o n .
l a r g e number o f
The b l a c k b a n k s as a g r o u p
R e s e r v e member b a n k s .
banks
Thus,
advanced
e x p e r i e n c e d by t h e b l a c k b a n k s c a n be t r a c e d t o t h e
cost of handling a r e l a t i v e l y
Table
e x t e n t as m a r k e t r a t e s
the
hand,
larger
to obtain
corpo-
reasonably
l a r g e number o f m o d e s t
time
9/
The b l a c k b a n k s , m a i n l y t h r o u g h t h e N a t i o n a l B a n k e r s A s s o c i a t i o n ,
t h e i r t r a d e a s s o c i a t i o n , made a n e f f o r t t o p e r s u a d e t h e U . S . T r e a s u r y
t o m o d i f y t h e management o f Tax a n d L o a n A c c o u n t s t o p e r m i t f u n d s t o
r e m a i n w i t h t h e b l a c k banks f o r a l o n g e r p e r i o d o f t i m e - - and t h u s
T h i s was r e j e c t e d as
e n a b l e t h e l a t t e r t o make more l o c a l l o a n s .
b e i n g i n c o n s i s t e n t w i t h t h e p r i m a r y p u r p o s e s o f t h e Tax a n d L o a n
See s p e e c h b y U n d e r S e c r e t a r y W a l k e r
A c c o u n t s - - w h i c h i t w a s .
c i t e d i n f o o t n o t e 2.
-13accounts
higher
m
t h e b l a c k banks n e c e s s a r i l y
operating cost
1 0 /
-
earning
--
without
i m p o s e s on them
p r o v i d i n g a commensurate v o l u m e
of Black
Banks
The b l a c k banks as a g r o u p a p p e a r
t o o n e - t h i r d as p r o f i t a b l e
serving
the p u b l i c
at
large.
rates are c l e a r :
aside
tially
relative
I n Table 5,
loan
income i n
reflects
loans.
under
interest
80 p e r c e n t o f
member b a n k s
banks,
sources o f banks1
for
interest
p r o p o r t i o n of
income a t
operating
t h e r a t i o was j u s t
t h e r e was l i t t l e
banks - -
t h e b l a c k banks e x p e r i e n c e
but
lower
and
substan-
losses.
the form of
the smaller
I n 1969,
their
from the high o p e r a t i n g costs
b l a c k banks r e c e i v e a n o t i c e a b l y
operating
of
s e v e r a l measures o f bank p r o f i t a b i l i t y
shown, a l o n g w i t h p r i n c i p a l
general,
one-quarter
t h e same s i z e - -
The m a i n e x p l a n a t i o n s
discussed above,
greater
t o be a b o u t
as o t h e r b a n k s o f
low e f f i c i e n c y
this
of
assets.—
Profitability
profit
substantially
operating
smaller
receipts.
their
income.
share of
To some
resources
o v e r 85 p e r c e n t .
v a r i a t i o n by s i z e o f b a n k ,
Federal
In
their
extent,
invested
t h e b l a c k b a n k s made up
income w h i l e a t a l l
are
in
just
Reserve
Among member
b u t among b l a c k
b o t h F e d e r a l R e s e r v e members and nonmembers - -
the
10/
F o r e x a m p l e , i n 1 9 6 8 , one o f t h e l a r g e s t b l a c k b a n k s r e p o r t e d
t h a t i t s a v e r a g e t i m e d e p o s i t was a b o u t $ 3 0 0 , w h i l e i t t y p i c a l l y
needs t h e e a r n i n g s f r o m a minimum a c c o u n t o f $600 j u s t t o b r e a k
even.
-14banks w i t h
smaller
total
deposits
share of
income on l o a n s
income
is
under
in
the
looked a t
$10 m i l l i o n
form of
obtained a
interest.
separately,
p e r c e n t a n d 68 p e r c e n t
of
F e d e r a l R e s e r v e members,
interest
income r i s e s
and s t r i k i n g l y
directly
there appears
--
t o be l i t t l e
total
income,
current
operating
R e s e r v e member b a n k s
charges
all
provided j u s t
income
For a l l
--
with
Historically,
(16 p e r
the r e l a t i v e
higher
charges
proportion
t h a n do
I n 1969,
the operating
service
t h e p r o p o r t i o n was 12 p e r c e n t ,
and
those w i t h deposits
cent)
become o f
greater
b l a c k banks
(and p a r t i c u l a r l y
for
of
nonmember b l a c k
banks.
income f r o m s e r v i c e
it
necessary
proportion
of
their
from service
standing at
for
However,
charges
accounts.
in
t h e end o f
some o f
to apply
charges
the
transactions,
the
1969 as a p e r c e n t a g e
the r e s u l t s
if
of
chartered
t o a much
indicate
ones)
larger
one e x p r e s s e s
total
income
deposits
that
as
has
given
the r e c e n t l y
service
charges
as w e l l
source
Again,
small
For example,
the y e a r ,
this
b l a c k banks.
h a n d l i n g a l a r g e number o f
found
Federal
$50
i n s u r e d commercial banks.
of
of
under
among a l l
heavy c o s t s
banks.
of
for
of
total
income
importance
significance
54
bank;
has b e e n d e c l i n i n g among F e d e r a l R e s e r v e member b a n k s - -
have
--
Among
size of
t h e same s i z e .
3 per cent
b l a c k banks
was somewhat h i g h e r
even l a r g e r
on l o a n s as a p e r c e n t a g e o f
from service
even o f
over
gap b e t w e e n
o r no s u c h v a r i a t i o n among b l a c k
member b a n k s a n d 5 p e r c e n t
million.
it
--
interest
respectively.
B l a c k banks o b t a i n a s i g n i f i c a n t l y
their
When
the r e l a t i v e
t h e b l a c k b a n k s a n d F e d e r a l R e s e r v e members i s
noticeably
such
out-
-15charges r e p r e s e n t e d about 4 . 0 cents
black banks,
million
3 . 3 c e n t s a t b l a c k banks w i t h d e p o s i t s
range,
$10 m i l l i o n .
and 6 . 3 c e n t s
range,
for a l l
o v e r $50 m i l l i o n ,
and 3 . 1 c e n t s
Turning
evidence
to
for
members,
4.8 cents
the o v e r a l l
in
for
those
the n a t i o n .
how f a r
I n 1969,
F e d e r a l R e s e r v e member b a n k s r e p r e s e n t e d
total
assets,
0.37 per cent of
member b a n k s .
for a l l
total
assets,
Operating
one-third
and i t
that
for
bite out of
the b l a c k banks,
securities)
million
of b l a c k banks,
the
t h e b l a c k banks
income o f
b l a c k banks,
of
rose
all
their
member
the r a t e
was 0 . 4 3 p e r c e n t
and t h e r a t e
lag
for
was
black
capital
somewhat
roughly
F e d e r a l R e s e r v e members as w e l l
Federal
However,
income a f t e r
bank.
income t a x e s
taxes
t a k e a much
(but before
i n 1969 r e p r e s e n t e d 0 . 2 8 p e r c e n t
taxes);
as
among b l a c k
t h e c a s e f o r F e d e r a l R e s e r v e member
(compared w i t h 0 . 3 7 per c e n t b e f o r e
with
million.
t h e same f o r
v a r i a t i o n by s i z e o f
income t h a n i s
below
i n the $10-50
b l a c k banks was 5 . 1 p e r c e n t ,
recorded f o r a l l
Among b l a c k b a n k s ,
$10-50
banks
income was 1 7 . 1 p e r c e n t o f b a n k
The r a t e
t h e r e was l i t t l e
for
operating
t h o s e w i t h d e p o s i t s u n d e r $50 m i l l i o n .
banks,
For
For a l l
F e d e r a l R e s e r v e member b a n k s ,
w i t h bank s i z e .
for
size groups.
all
corresponding
1.27 per cent
and t h e r a t e was e s s e n t i a l l y
banks i n d i f f e r e n t
the
u n d e r $10
profitability
clearly
the
2.8 cents
those w i t h deposits
i n Table 5 i n d i c a t e s
b e h i n d o t h e r banks
in
for
f o r b l a c k banks w i t h d e p o s i t s
F o r F e d e r a l R e s e r v e member b a n k s ,
f i g u r e s were 3 . 3 c e n t s
deposits
p e r $100 o f d e p o s i t s
of
smaller
banks.
transactions
total
the r a t e s
in
assets
of r e t u r n
m
-16relation
t o bank c a p i t a l were 3 . 9 per c e n t and 5 . 1 p e r
respectively.
For a l l
F e d e r a l R e s e r v e member b a n k s ,
cent,
the r a t e s
of
r e t u r n on a s s e t s w e r e 1 . 2 7 p e r c e n t b e f o r e a n d 0 . 8 5 p e r c e n t
after
taxes.
cent
In r e l a t i o n
t o bank c a p i t a l ,
b e f o r e and 1 1 . 4 per c e n t a f t e r
income
(and a few o t h e r
after-tax
the bank.
mance o f
This
the
banks appear
banks - 1969,
specific
income,
is
the
Federal
net
figures
poor
accounts.
indicators
impact
of
extent,
of
perfor-
the
of
losses
of
black
total
Federal
under
$50
the b l a c k banks r e f l e c t s
Some i n s i g h t
i n Table 4 r e l a t i n g
to
their
o p e r a t i n g e x p e n s e s as p r o v i s i o n
for
to
loss
is
million,
cent.
the
the
heavy
into
the
p r o v i d e d by
experience.
7.3 per cent of
loan losses.
The
assets
cent,
c e n t and 10.5 per
on b l a c k banks
In
Reserve
as a l r e a d y m e n t i o n e d ,
b l a c k banks s e t a s i d e an amount e q u a l
yardstick,
c e n t and 1 0 . 8 per
on l o a n s w h i c h t h e y h a v e i n c u r r e d .
differential
income
the o v e r a l l
For a l l
were 0 . 8 7 per
performance
deducted
t h e same s i z e g r o u p s a r e c o m p a r e d .
were 0 . 8 0 per
To a c o n s i d e r a b l e
(or
as w e l l as F e d e r a l R e s e r v e member
F o r member b a n k s w i t h d e p o s i t s
the corresponding
relatively
this
securities
the net
income was 0 . 3 1 p e r c e n t
capital
the r a t i o s
respectively.
amount i s
Measured w i t h
than h a l f
in
a r e added t o
f i g u r e which s p o t l i g h t s
e v e n when b a n k s o f
member b a n k s ,
from transactions
the r e s u l t i n g
t o do l e s s
the b l a c k banks1
losses
transactions)
institution.
and 4 . 2 per c e n t o f
losses
deduction of applicable
taxes.
When n e t g a i n s o r
from)
the r a t e s were 1 7 . 1 per
In
several
1969,
their
percentage
-17was h i g h e r
for
especially
so f o r b l a c k F e d e r a l R e s e r v e member b a n k s
where i t
b l a c k banks w i t h d e p o s i t s
was 1 3 . 0 p e r c e n t .
b a n k s s e t a s i d e a sum e q u a l
expenses
to cover
deposits
o v e r $50 m i l l i o n ) ,
3.7 per cent
u n d e r $10 m i l l i o n
In contrast,
For
their
the p r o v i s i o n
for
for
t h e l a r g e s t member banks
those w i t h deposits
It
is
it
in relation
was
range,
b e l o w $10 m i l l i o n .
Thus,
t o o p e r a t i n g expenses
F e d e r a l R e s e r v e member b a n k s was s u b s t a n t i a l l y
size
(with
t h e p r o p o r t i o n was 1 . 9 p e r c e n t ;
loan losses
i n every
category
operating
f o r member b a n k s i n t h e $ 1 0 - 5 0 m i l l i o n d e p o s i t
and 4 . 3 p e r c e n t
b l a c k banks
this
F e d e r a l R e s e r v e member
t o 2 . 1 per cent o f
loan losses.
m
--
smaller
of
than f o r
the
group.
e v e n more i n s t r u c t i v e
t o compare t h e a m o u n t s
set
11/
to cover
aside
loan losses w i t h
F e d e r a l R e s e r v e member b a n k s ,
and i t
the banks'
i n 1969,
net
income.
For
all
t h e r a t i o was 1 1 . 4 p e r
d e c l i n e d s h a r p l y as t h e s i z e o f b a n k i n c r e a s e d - -
cent,
from
30.0 per cent
f o r member b a n k s w i t h d e p o s i t s u n d e r $10 m i l l i o n ,
20.0 per cent
for
per cent
contrast,
for
those i n
the $10-50 m i l l i o n
those w i t h deposits
f o r b l a c k banks,
per cent
of net
income.
It
deposits
of
deposits
u n d e r $10 m i l l i o n .
o v e r $50 m i l l i o n .
the p r o v i s i o n
for
(120.0 per
and t o
In
was 1 4 0 . 0 p e r c e n t
than for a l l
I n a c t u a l amounts,
t h e b l a c k b a n k s had n e t
and t h e y s e t a s i d e
$1.1 m i l l i o n
to cover
striking
137.5
f o r b l a c k banks
for
banks
F o r b l a c k member b a n k s ,
cent)
10.7
l o a n l o s s e s was
$ 1 0 - 5 0 m i l l i o n and 1 0 0 . 0 p e r c e n t
somewhat s m a l l e r
11/
range,
the r a t i o
income o f $800
in
with
with
b l a c k banks
loan losses,
to
was
combined.
thousand,
1969.
For
A g a i n , i t must be e m p h a s i z e d ttat t h e p r o v i s i o n f o r l o a n l o s s e s i s
i n c l u d e d i n o p e r a t i n g e x p e n s e s and t h u s h a s a l r e a d y b e e n d e d u c t e d
b e f o r e n e t income i s c a l c u l a t e d .
-18all
F e d e r a l R e s e r v e member b a n k s ,
billion,
under
and i t
was $600 m i l l i o n
$50 m i l l i o n ;
for
income amounted t o
member b a n k s w i t h
the corresponding p r o v i s i o n
$400 m i l l i o n a n d $130 m i l l i o n ,
On t h e b a s i s
ing general
net
of
conclusion:
these
figures,
impact
For a l l
i s much l e s s
l o a n l o s s e s was
one c a n r e a c h t h e
t h e need t o c o v e r e x c e p t i o n a l
c u t b y more t h a n o n e - h a l f
might reach.
is
from the l e v e l
it
on t h e o r d e r
of one-tenth.
larger
--
Moreover,
tively
larger
only one-seventh.
current
provision
for
total
bad d e b t
reserves
t h a n have banks g e n e r a l l y .
debts
in
F e d e r a l R e s e r v e member b a n k s ,
banks w i t h d e p o s i t s
f i g u r e was 0 . 3
bank.
per
I n one s e n s e ,
reserves at
provision
significant
--
amount o f a c t u a l
t o be d r a w n down t o
total
the r e l a t i v e l y
loan losses
cover
is
relabanks,
volume
reserves
bad
loans outstanding a t
all
For a l l
1.5 per cent
b l a c k banks,
the
easily
at
the
v a r i a t i o n by s i z e
s m a l l a c c u m u l a t i o n o f bad
losses,
them.
the
loans
and t h e y were a b o u t
despite
somewhat
for
a n d t h e r e was l i t t l e
b l a c k banks - -
for
of
u n d e r $50 m i l l i o n .
cent,
smaller
As shown i n T a b l e 4 ,
1969 w e r e 2 . 1 p e r c e n t
is
l o a n l o s s e s by t h e b l a c k
in relation to total
net
adverse
despite
t h e y a p p a r e n t l y have a c c u m u l a t e d a s u b s t a n t i a l l y
of
their
F o r member
the p r o p o r t i o n
still
losses
otherwise
the
b a n k s w i t h d e p o s i t s b e l o w $50 m i l l i o n ,
but
follow-
loan
so h e a v y t h a t
F e d e r a l R e s e r v e member b a n k s ,
--
deposits
respectively.
imposes a d r a i n on t h e b l a c k banks t h a t
income i s
for
$3.5
s i z a b l e amount o f
explained:
of
debt
current
they s u f f e r
a n d t h e bad d e b t r e s e r v e s
a
have
-19Of c o u r s e ,
in
the l a s t
operating
of
all
seven y e a r s ,
losses.
income.
since half
For
of
one w o u l d e x p e c t
some t i m e ,
A previous
t h e b l a c k b a n k s have b e e n
examination of
1962-64 i n d i c a t e d
to experience
losses
them t o
r u n ahead
the operating experience
m
the U n i t e d States
t h a t a new b a n k must
from c u r r e n t
incur
expenses would n a t u r a l l y
i n s u r e d commercial banks c h a r t e r e d
three years
some o f
started
operations
m
typically
and n e t
of
the
expect
income
after
12/
taxes during roughly
However,
first
because o f
institutions,
existence.
for
t h e new b l a c k
experience
t h e b l a c k b a n k s as a g r o u p had no a f t e r - t a x
13/
the three years
ending m
of
to
first
the opening of
the
- 1 . 0 per c e n t ;
institutions
1967.
Their
net
c a p i t a l was 5 . 6 p e r c e n t
new b a n k s .
r e t u r n d e c l i n e d each y e a r :
the
longer
its
the adverse o p e r a t i n g
t a x e s as a p e r c e n t a g e
1965,
two y e a r s o f
t h e p e r i o d was c o n s i d e r a b l y
For example,
during
the
1966,
1963,
- 5 . 0 per c e n t ;
launched i n
the e a r l y
in
to mid-1960's
profits
after
1962 j u s t
1964,
and 1 9 6 7 ,
t h e new
income
Subsequently,
5.2 per c e n t ;
of
banks.
the r a t e
2 . 1 per
prior
of
cent;
- 5 . 4 per c e n t .
matured,
As
their
o p e r a t i n g d e f i c i t s disappeared or shrank s u b s t a n t i a l l y (except f o r
14/
a few c a s e s ) .
N e v e r t h e l e s s , as e x p l a i n e d a b o v e , t h e h i g h c o s t
12/
See B r i m m e r , " T h e B a n k i n g S y s t e m and U r b a n Economic
p . 1 9 , and T a b l e s 7 and 8 , c i t e d a b o v e m f o o t n o t e 3 .
13/
Ibid.,
p.
Development,"
17.
14/
I n 1969, s i x o f the b l a c k banks r e c o r d e d d e f i c i t s from o p e r a t i o n s .
F o u r o f t h e s e w e r e new b a n k s s t i l l m t h e f i r s t o r s e c o n d y e a r o f
operations.
H o w e v e r , one o f t h e r e m a i n i n g two b a n k s d a t e s f r o m t h e
p r e - W o r l d War I I y e a r s , and t h e o t h e r d a t e s f r o m t h e e a r l y 1 9 6 0 ' s .
-20of
operations
operating
income over o p e r a t i n g expenses v e r y
to provide
factors
f a c e d b y t h e b l a c k b a n k s has k e p t
for
exceptionally
producing
this
ness
is
intimately
loss
the high
s m a l l banks
to
to
of
the i n h e r e n t
rates
l e n d money.
This
is
true whether
particularly
annually
to
for
Black
place
the
influence
are
factors
ghetto
on t h e
internal
to
perforthese
Among
a n d management p e r s o n n e l
influence
of
o f each o f
these
factors
the bank e x a m i n a t i o n r e p o r t s
these,
are
individual
b a n k s c a n n o t be r e v e a l e d ,
conditions
While
it
is
and p e r f o r m a n c e o f
the
Board's
examination s t a f f
is
1970.
details
to
t h e banks as a
t h e b l a c k banks by t h e F e d e r a l
for
at
possible
The e v a l u a t i o n o f
shown i n T a b l e 6 ,
c a n be
prepared
group.
for
Banks
each i n s u r e d commercial bank.
comment on t h e g e n e r a l
1968, and
family
(compounded
such banks
associated with
several
busi-
important.
a s s e s s e d on t h e b a s i s
relating
However,
asset q u a l i t y ,
The g e n e r a l
least
factors
of
low
a l s o h a v e a m a j o r b e a r i n g on t h e o u t c o m e .
adequacy,
main
people.
u n d o u b t e d l y have a s i g n i f i c a n t
mance o f b l a c k b a n k s .
capital
need
the
of doing
make t h e g h e t t o a n e x t r e m e l y r i s k y
The a b o v e e x t e r n a l
institutions
risk
among s m a l l b u s i n e s s e s
A s s e t Q u a l i t y a n d Management o f
environment
one o f
the black banks,
owned a n d r u n b y b l a c k p e o p l e o r b y w h i t e
Capital,
is
And t h e
t h e h i g h unemployment r a t e s ,
failure
by h i g h c r i m e r a t e s )
loan losses
experience
related
i n the urban ghetto:
incomes,
thin.
of
result.
This adverse
course,
large
the margin
Reserve
the years
1967,
-21In the examination process,
three general c r i t e r i a
ment p e r f o r m a n c e )
(capital
adequacy,
of c a p i t a l
ratio,
is
of
t h e more a d e q u a t e
Asset q u a l i t y
loan losses w r i t t e n
what l e s s
doubtful
is
compared w i t h
o p e r a t i o n s as w e l l a s i t s
Finally,
w e i g h i n g each o f
by a s s i g n i n g
suggesting
each o f
the o v e r a l l
the three
It
in
is
strong i n the other
a Group 2 c o m p o s i t e r a t i n g .
d e m o n s t r a t e weakness
the higher
terms o f
loans
capital.
the
size
t h a t are of
effective
A bank's
control
over
t o employ t h e b a n k ' s
evaluation is
is
two;
rating
of
summarized
w i t h a Group 1
rating
to
f o r a b a n k t o be weak i n
such a s i t u a t i o n m i g h t r e s u l t
On t h e o t h e r h a n d ,
banks
from supervisory a u t h o r i t i e s .
Banks w i t h a
facing p a r t i c u l a r l y
one
in
i n Group 3
i n more t h a n one a r e a a n d may w e l l be
i n Group 4 a r e t h o s e
are
assets
classi-
f i e d b y e x a m i n e r s as p r o b l e m b a n k s , w h i c h means t h e y r e q u i r e
attention
is
banking
the top category w i t h r e s p e c t
possible
some-
management
the r e s u l t
It
the
in
Class A banks
separate c r i t e r i a .
t h e bank i s
the standards.
area but
ability
adequacy
t o which repayment
t o t h e bank a c o m p o s i t e r a t i n g ,
that
in
the h i g h e s t q u a l i t y .
its
and manage-
and t h e bank i s r a t e d
or i n respect
the bank's
against
Capital
to r i s k assets;
judged p r i m a r i l y
e v a l u a t e d i n terms o f
profitably.
score.
o f f and t h e volume o f
t h o s e whose a s s e t s a r e o f
team i s
capital,
t h a n good q u a l i t y
--
asset q u a l i t y ,
and a r e g i v e n an o v e r a l l
i s measured by t h e r a t i o
Group 1.
banks a r e a p p r a i s e d
extra
composite
serious
difficulties.
-22On b a l a n c e ,
as one c a n see f r o m T a b l e 6 , m o s t o f
banks have a d e q u a t e c a p i t a l .
capital
positions
r a p i d growth of
recently
in
the l a s t
have weakened somewhat.
Much o f
some o f
the
c h a r t e r e d banks.
loan losses w r i t t e n o f f
launched d u r i n g
The a s s e t s
only
fair
quality.
which repayment
number o f
effort
cases,
cases,
the
i s moderate
t h e p r o b l e m was t r a c e d
t h e banks
low f a m i l y
(all
recently
loans
the businesses
in their
serious
difficulties.
Most o f
10 p e r c e n t ,
While
this
collection
with
policies
is
loans.
S t a t e member b a n k s .
sizable
banks
or
loans
as a l r e a d y
borrowers.
about
in a
indicated.
control.
However,
character
t h e bank r a n
trying
from 1 per
t o 25 p e r
of general ghetto
on
averages
cent.
conditions,
strengthened.
t h e a s s e t e v a l u a t i o n and c o m p o s i t e
rating
f o r a sample o f F e d e r a l
t h e s m a l l number o f
amount
to c o l l e c t
i n the group
cent
of
into
spend a s u b s t a n t i a l
t h e b a n k s c o u l d a l s o be
Because o f
of
c h a r t e r e d o n e s ) made a m a j o r
P a s t due p a p e r
those
as
t o p o o r management
local
p a r t l y a legacy
banks a r e compared w i t h
to
t h e banks
i n some o f
7,
the
the
the
the
i n some i n s t i t u t i o n s ,
market area,
the range being
In Table
black
loan losses
(not always w i t h success)
situation
their
of
also reflects
incomes and t h e m a r g i n a l
most o f
d e f a u l t e d or d e l i n q u e n t
so,
reflects
particularly
of
black
years.
the volume o f
doubtful
t i m e and e f f o r t
this
t h e b l a c k b a n k s m u s t be c l a s s i f i e d
t o grow by e x p a n d i n g
because o f
of
it
year or
a g a i n m a i n l y by s e v e r a l
few
While
is
some o f
--
t h e banks l o s s e s have been heavy - -
In several
In other
of
institutions
But
--
the l a s t
However,
the
of
Reserve
Negro-owned
banks,
-23one m u s t be c a u t i o u s
i n drawing conclusions
However,
b l a c k b a n k does seem t o h a v e a s s e t s
quality
the
typical
somewhat l o w e r
than t h a t
from these
characteristic
F e d e r a l R e s e r v e S t a t e member b a n k .
Their
overall
measured by t h e c o m p o s i t e r a t i n g a l s o a p p e a r s
Again,
as m e n t i o n e d a b o v e ,
to inherent
in
difficulties
the g h e t t o ,
shortage
but
some o f
of
some o f
An e v e n b r o a d e r
t h e books o f b l a c k banks
These d a t a
gories:
is,
m
examination s t a f f .
" c l a s s i f i e d 1 1 and " s p e c i a l l y m e n t i o n e d "
"substandard",
The r e s u l t s
of
member b a n k s ,
"doubtful
--
for
the years
are
shown i n T a b l e 8 ;
traced
business
the
present
loans
8 and
this
two m a i n
with
three
of repayment",
the e v a l u a t i o n of a s e l e c t i o n
strong.
on
9.
s u c h l o a n s made
For
into
into
of
Tables
the e v a l u a t i o n of
c a t e g o r y b r o k e n down f u r t h e r
as
banks.
evaluated against a scale divided
"classified"
that
reflects
on t h e q u a l i t y
p r o v i d e d by d a t a
by the F e d e r a l Reserve B o a r d ' s
the loan i s
the black
perspective
show, b y s i z e o f b a n k ,
c a n be
to conduct a banking
in
a
average
t o be l e s s
the divergence also
is
the
of
performance
the d i f f e r e n c e
trying
o f management p e r s o n n e l
of
data.
purpose,
cate-
the
subclasses,
or "probable
of Federal
loss".
Reserve
1964 a n d 1 9 6 9 , a n d t h e a v e r a g e s
for
the
15/
six years,
banks i s
shown i n T a b l e
the
information
for
the
black
9.
15/
The f i g u r e s f o r t h e s i x y e a r a v e r a g e s a r e b a s e d on d a t a f o r
t h e y e a r s 1 9 6 5 - 6 8 as w e l l as on t h e two y e a r s shown.
Data f o r the
i n t e r v e n i n g y e a r s were n o t l i s t e d because o f l a c k o f space.
-24In general,
the basis
of
of
t h e e v i d e n c e g i v e n above w i t h r e s p e c t
loans a t b l a c k banks.
(those c l a s s i f i e d
For example,
total
in
i n 1964,
capital
Taking a l l
the q u a l i t y
of
t h e amount o f
accounts a t
over
the
climbed sharply
banks i t
rose only
the average
for
the volume o f
five
years,
loan
the r a t i o
10 p e r
cent.
black
banks
for
year
Again,
i n 1 9 6 9 , a n d t h i s was
the biggest
factor
in
producing
the black banks,
all
t h e s e v e r e s h o r t a g e o f management
the most c r i t i c a l
example,
as shown i n T a b l e 6 ,
problem f a c i n g
s i x were r a t e d
nine of
of
talent
the b l a c k banks were
"fair",
of
c a t e g o r y depend h e a v i l y
services
other
of a single
officers
the " s a t i s f a c t o r y "
with
key e x e c u t i v e ,
considerable
but
For
rated
and seven were r a t e d
In general,
instiis
the b l a c k banks.
i n 1970.
m
in
the
these
i n t e r m s o f management p e r f o r m a n c e
the banks
also
a t b l a c k b a n k s was t h e s h a r p r i s e
common t o v i r t u a l l y
probably
"satisfactory11,
of
losses.
l a c k o f management d e p t h i s
In fact,
loans.
F o r F e d e r a l R e s e r v e member
T u r n i n g t o management p e r s o n n e l
tutions.
notice-
t h e same as
i n 1969, and t h e s i x
t o a b o u t 13 p e r c e n t
loan q u a l i t y
together
the b l a c k banks1
both being about
24 p e r c e n t .
the six years.
the weakening i n
loans
quality
one c a n t r a c e a
some o f
t o a b o u t 30 p e r c e n t
a v e r a g e was a p p r o x i m a t e l y
to the
t h e b l a c k b a n k s was r o u g h l y
following
f o r m e d on
s u c h l o a n s as a p e r c e n t a g e
F e d e r a l R e s e r v e member b a n k s - -
However,
questionable
or s p e c i a l l y m e n t i o n e d ) ,
able d e t e r i o r a t i o n
for
these data c o n f i r m the impressions
"poor"
e v e n some
on
t h e y a l s o had one o r
banking experience.
The s i x
the
two
banks
-25with
!f
fairfl
thinness
"poor11,
ratings
had a m i x t u r e
of experiences,
o f management was e v i d e n t .
one o r
Among t h e s e v e n b a n k s
two w e r e f a c e d w i t h s e r i o u s management
p r o b l e m s as w e l l as h a v i n g few m i d d l e - l e v e l
The management p r o b l e m s
fact
that
conduct
only a handful
of
their
of
affairs.
the o r d e r l y
conduct o f b a n k i n g must r e s t .
analysis
has e x p o s e d t h e b a n k s
h i g h volume o f
thus
lacked the
economics,
on t h e p a r t
this
severe
were k e p t
incentives
form the foundations
lack
of
officers
produced
the
d i s c r i m i n a t i o n and
talent
segregation,
t h e e c o n o m i c m a i n s t r e a m and
to acquire a mastery of
skills
in
and b u s i n e s s a d m i n i s t r a t i o n ,
which
o f b a n k management.
Fortunately,
i n most o f
the b l a c k banks,
a number
of
young p e o p l e have been added i n r e c e n t
y e a r s a n d a r e now w o r k i n g
t h e i r way up t h e o c c u p a t i o n a l
Moreover,
b e i n g made i n s e v e r a l
of
in
the next
ladder.
the t r a i n i n g
t h e number o f b l a c k b a n k e r s ,
appreciably
given the
progress
programs designed t o
increase
the supply of
few y e a r s .
personnel
In contrast,
s e n i o r management r a n k s a r e e x t r e m e l y
the
on w h i c h
s h o r t a g e o f management
out of
accounting,
for
serious
the
o f many l o a n
the
above.
because o f r a c i a l
finance,
Moreover,
t o numerous r i s k s w h i c h l a t e r
The r e a s o n f o r
Negroes h i s t o r i c a l l y
led to
a c c o u n t i n g and a u d i t i n g
losses discussed
i s w i d e l y known:
officers.
The s h o r t a g e has a l s o
controls,
in credit
succession
e x p e r i e n c e d men a r e r e s p o n s i b l e
internal
the
rated
i n t h e b l a c k b a n k s go b e y o n d
problems of
experience
but here a l s o
thin,
should
although
t h e r e appears
expand
the
to
be
-26considerable
people.
reluctance
Admittedly,
m
a number o f
institutions
t h e m i d d l e management l e v e l s
to take
are also
i n new
thin,
few m a t u r e and e x p e r i e n c e d p e o p l e c a n r e a d i l y assume o v e r a l l
sibility
for
direction
of
the i n s t i t u t i o n s 1
On t h e o t h e r h a n d ,
opportunity
for
some o f
t h e r e appears
t h e banks
they could b u i l d
For example,
senior
the s p e c i f i c
a substantial
positions
o n l y a few o f
involved
m
with
Some o f
specialized
preparation
to
the black-owned banks.
--
While
them good
i s s u e s w i t h w h i c h bank
still
in
the
them h a v e moved o n t o o t h e r
--
and a f t e r
a number o f
Undoubtedly,
a reasonable
them c o u l d be
jobs.
period
attracted
p e r s o n s who h a v e n o t
similar
experiences
been
c o u l d be
well.
But whatever
l o s e no t i m e m
ment l e v e l .
to
q u i t e a few w e r e
to give
these appointees are
i n g o v e r n m e n t b u t who have a c q u i r e d
i n c l u d e d as
on w h i c h
management.
the 1960's.
posts,
the range o f
inducements
of
trying
the method used,
to
in banking,
t h e b l a c k banks
s t r e n g t h e n themselves a t
I n the process,
t h a t a l a r g e number o f
in
top p o l i c y
b u t most o f
W i t h the a p p r o p r i a t e
fields
needed i n f i n a n c i a l
i n p o l i c y m a k i n g a t a h i g h enough l e v e l
F e d e r a l Government,
professional
number o f N e g r o e s w e r e a p p o i n t e d
them o c c u p i e d t h e
managers must d e a l .
skills
in other
t h e F e d e r a l Government
e x p o s u r e and f a m i l i a r i t y
excellent
to a t t r a c t mature,
skills
respon-
affairs.
t o be a n
men a n d women who h a v e a c q u i r e d e x p e r i e n c e
so
they should also not
people - -
a n d many o f
should
the senior
overlook
who h a p p e n t o be w h i t e - -
them a r e w i l l i n g
to work m
the
managefact
do h a v e
black
-27institutions.
I n my j u d g m e n t ,
although e f f o r t s
t o expand t h e s u p p l y o f b l a c k b a n k e r s ,
appears
likely
in
the s h o r t
run.
no s i g n i f i c a n t
Thus,
I am l e f t
t h a t b l a c k b a n k s m u s t become more w i l l i n g
t i o n of white
officers
--
have e x p e r i e n c e d n o t i c e a b l e
so as t o
local
borrowers
control.
In contrast,
been a g g r e s s i v e
all
of
lenders
in
their
them have e x p e r i e n c e d
i n the ghetto.
portion of
their
substantially
their
In general,
total
resources
below t h a t
the loan/deposit
was 6 7 . 2 p e r c e n t .
It
ratio
57.4 per
cent
for
their
was h i g h e s t
potential
the
banks
lending
prac-
resources
to
good
t h e banks
communities,
and
have
virtually
losses.
t h e b l a c k banks have
l o a n s and i n v e s t m e n t s
as shown i n T a b l e
10,
the
loans
(69.7 per cent)
banks w i t h d e p o s i t s
for
institutions
of
prois
and
i s much h i g h e r .
F e d e r a l R e s e r v e member
the smaller
found
exclu-
i n t h e n a t i o n as a w h o l e ,
S. G o v e r n m e n t
at a l l
above,
under r e a s o n a b l y
r e p r e s e n t e d by t o t a l
f o r banks
banks and d e c l i n e d s h a r p l y a t
at
local
their
a number o f
however, most o f
t h e p r o p o r t i o n r e p r e s e n t e d by U.
1969,
loss rates
sizable
wise to avoid concentrating
sively
proportion of
little
A few o f
in tailoring
as shown a b o v e ,
On t h e w h o l e ,
it
Development
success
while keeping
propor-
doing.
t o possess v e r y
lend a s i g n i f i c a n t
--
conviction
to employ a g r e a t e r
o f u r b a n economic d e v e l o p m e n t .
tices
the
the combination of handicaps described
t h e b l a c k b a n k s as a g r o u p a p p e a r
as i n s t r u m e n t s
accelerated
improvement
with
w h i c h some a r e a l r e a d y
B l a c k Banks a n d Community E c o n o m i c
Because o f
are being
the
--
In
banks
biggest
standing
$ 1 0 - 5 0 m i l l i o n and
at
-2853.3 per cent
b l a c k banks,
lower:
for
banks w i t h d e p o s i t s
the l o a n / d e p o s i t
50.6 per cent
for a l l
the $10-50 m i l l i o n d e p o s i t
with deposits
held nearly
Government
securities,
R e s e r v e member
banks p l a y i n
range,
of
their
In contrast,
t o t a l assets
i n the
loans c o n s t i t u t e d
I n 1969,
8.9 per c e n t o f
b e l o w $10 m i l l i o n .
member b a n k s ,
(24.5 per cent)
o v e r $50 m i l l i o n .
at
m i l l i o n deposit
class,
b e l o w $10 m i l l i o n .
all
the l a r g e s t
However,
o t h e r member b a n k s - -
f o r banks
banks w i t h
This
cent)
and a l s o
of
total
It
was
total
11.7 per cent
f o r banks i n
quite
assets
slightly
deposits
the
and 8 . 0 p e r c e n t a t b a n k s w i t h
The p o i n t
to note
is
that
t h a n do t h e
point w i l l
institutions
at
lesser
the
be t a k e n up a g a i n i n
lower
$10-50
deposits
the small
play a considerably
in
Reserve
banks
b l a c k b a n k s as w e l l as t h e s m a l l e r members
financing
follows.
total
(6.6 per
--
loans.
black
t h e p r o p o r t i o n was s u b s t a n t i a l l y
t h e F e d e r a l Reserve System - -
which
their
22.2 per cent
i n commercial and i n d u s t r i a l
industry.
Federal
Among F e d e r a l
For a l l
the
S.
commerical
r a n g e a n d somewhat l o w e r
instructive.
business
1969
f o r m o f U.
(9.7 per cent)
t h e p i c t u r e was m a r k e d l y d i f f e r e n t
--
those
i n T a b l e 10 a l s o p o i n t up t h e r o l e w h i c h
those w i t h d e p o s i t s
generally
in
b l a c k banks i n
member b a n k s ,
at
those
for
compared w i t h o n e - t e n t h o f a l l
the $10-50 m i l l i o n d e p o s i t
higher
for
and 5 5 . 4 p e r c e n t
t h e r a t i o was somewhat h i g h e r
was i n v e s t e d
considerably
49.0 per cent
financing black businesses.
and i n d u s t r i a l
for
banks,
Among
banks.
The d a t a
assets;
r a t i o was g e n e r a l l y
b e l o w $10 m i l l i o n .
one-quarter
u n d e r $10 m i l l i o n .
role
forefront
the
of
in
of
section
-29Real e s t a t e
the b l a c k banks'
for a l l
loans
total
in
assets
1969 c o n s t i t u t e d a b o u t
compared w i t h j u s t
F e d e r a l R e s e r v e member b a n k s .
among b l a c k
institutions
roughly
17 p e r c e n t
a n d 14 p e r c e n t a t
general,
for
(including
is
the black
and o t h e r
the whole,
loans
real
estate
involved.
This
is
especially
to i n d i v i d u a l s
consumer c r e d i t )
of
assets
(about
are quite
(mainly personal
c o n s t i t u t e d about
10 p e r c e n t )
at
deposit
range
In
feel
t h a n t h e y do when
economic a d v e r s i t i e s
types of
total
member
standing
institutions)
t h e b l a c k b a n k s among whose c u s t o m e r s b u s i n e s s
ployment,
variation
smaller
the $10-50 m i l l i o n
of
one-tenth
t h o s e w i t h a s s e t s b e l o w $10 m i l l i o n .
s e c u r e when l e n d i n g a g a i n s t
collateral
but at
than the average - -
f o r banks i n
s m a l l banks
types of
over
T h e r e was l i t t l e
by s i z e o f bank,
b a n k s t h e r a t i o was much h i g h e r
one-fifth
more
other
true,
however,
failures,
unem-
prevalent.
l o a n s and
t h e same
On
other
proportion
a t b o t h b l a c k banks and
at
F e d e r a l R e s e r v e member b a n k s .
T a k e n as a g r o u p ,
sizable
their
proportion of
local
communities.
the i n f o r m a t i o n
of
loans
total
one-fifth
i n Table
seem t o c h a n n e l a
total
to borrowers
This
11,
resources
conclusion
indicating
is
clearly
selected
o u t s t a n d i n g a t b l a c k b a n k s as shown i n
tion reports.
banks'
their
t h e b l a c k banks
According
suggested
1970 b a n k
about
four-fifths
l o a n s had b e e n e x t e n d e d t o
local
borrowers,
outside
by
characteristics
to these data,
had b e e n made t o b o r r o w e r s
outside
their
local
examinaof
and
the
about
communities.
-30For
several
of
to t w o - f i f t h s
tion
it
the b l a c k banks,
range - -
was as h i g h as
The l a r g e s t
of
and f o r
sales
represent
of
federal
s i n g l e amount o f
of excess
in
including
institutions.
In fact,
a v a i l a b l e market
resources
liquid
(ordinarily
The p r a c t i c e
--
the
is
lending
institu-
consisted
These l o a n s
funds f o r a s h o r t
the
actually
time
Federal
federal
smaller
funds market provides a
funds can keep
representing
readily
their
y i e l d s w i t h minimum e f f o r t .
--
along w i t h other
t h e s e had s o l d $ 1 5 . 9 m i l l i o n
12 p e r c e n t o f
their
total
The
institutions.
t h e d a t a i n T a b l e 11 a r e b a s e d o n e x a m i n a t i o n
16 o f
of
reports
federal
loans.
A n o t h e r way i n w h i c h t h e b l a c k b a n k s h a v e c h a n n e l e d
to outside borrowers
is
by
f o l l o w e d b y a g r e a t many b a n k s
i n w h i c h banks w i t h excess
23 b l a c k b a n k s ;
funds,
outside
some l a r g e b a n k s as w e l l as
b l a c k banks have d i s c o v e r e d t h i s
for
one-third
long-established
a member b a n k o f
employed a t a t t r a c t i v e
For example,
the
one-half.
Reserve System).
the country
one f a i r l y
f u n d s by t h e b l a c k b a n k s .
the l e n d i n g
one b a n k t o a n o t h e r
t h e p r o p o r t i o n was i n
through the purchase of
participations
funds
in
16/
l o a n s o f f e r e d by l a r g e ,
outside banks.—
This p r a c t i c e
engaged i n b y numerous s m a l l b a n k s t h r o u g h o u t
is
the c o u n t r y .
also
As
16/
I n a few c a s e s , some o f t h e p u r c h a s e d p a r t i c i p a t i o n s may be
l a r g e l o c a l l o a n s made by a b i g c i t y b a n k a t t h e b l a c k b a n k ' s
r e q u e s t and a p o r t i o n t h e n a c q u i r e d b y t h e b l a c k b a n k .
However,
loans of t h i s type are b e l i e v e d to c o n s t i t u t e only a minor p a r t
o f t h e p u r c h a s e d p a r t i c i p a t i o n s on t h e b o o k s o f t h e b l a c k b a n k s .
-31shown i n T a b l e 1 1 ,
purchased p a r t i c i p a t i o n s
and a c c o u n t e d f o r a b o u t
F i f t e e n of
6 per cent of
t h e same t i m e ,
their
or about
$36.2 m i l l i o n
loans
(representing
about o n e - f i f t h
t h e same t i m e ,
prospect
must
of
factors.
amount o f d e p o s i t s
of
the t o t a l
flows
For
the f a i r l y
in during
adequate o u t l e t s
alternatives.
banks
have been i n b u s i n e s s
of
At
$28.3
loans
the
of
outstanding
consisted of
loans
to outside borrowers
reflection
new i n s t i t u t i o n ,
the e a r l y months o f
for
funds w i t h a
Thus,
funds employed,
However,
t h e banks w i t h a p a r t i c u l a r l y
17/
Business
26 p e r c e n t )
member b a n k s .
s t i t u t e d 39.6
per cent f o r
institutions.
loans.
f u n d s b y b l a c k b a n k s may be a
funds m a r k e t and the purchase o f
standing
all
So, w h i l e
their
actually
o f r e p a y m e n t d e v e l o p more s l o w l y .
that
loans.
26.3 per c e n t o f
attractive
of
total
t h e y h a d made b u s i n e s s
f i n d a means o f k e e p i n g i t s
federal
their
loans.
borrowers."^
This export
o f a number o f
Virtually
l o c a l b u s i n e s s e s amounted t o
showed t h a t
to outside business
At
to
million
total
i n c o m m e r c i a l and i n d u s t r i a l
20 p e r c e n t o f
b l a c k banks1 books
loans),
the b l a c k banks1
t h e 23 b a n k s had made s u c h p u r c h a s e s .
these were p a r t i c i p a t i o n s
million,
amounted t o $ 7 . 9
this
a
sizable
its
existence.
reasonable
s u c h a new b a n k
and b o t h
participations
i s much l e s s
for a long time.
high proportion of
offer
true
In
the
for
fact,
their
those
several
loans
had been i n o p e r a t i o n a number o f
outyears.
l o a n s i n r e l a t i o n t o t o t a l l o a n s a t b l a c k banks (about
c a n be c o m p a r e d w i t h s i m i l a r f i g u r e s f o r F e d e r a l R e s e r v e
For t h e l a t t e r , c o m m e r c i a l and i n d u s t r i a l l o a n s conp e r c e n t o f t o t a l l o a n s f o r a l l member b a n k s and 2 5 . 7
c o u n t r y member b a n k s - - w h i c h a r e g e n e r a l l y s m a l l e r
-32On t h e w h o l e ,
part
b l a c k b a n k s may be t r a c e d
However,
on t h e b a s i s
to believe
that
to minimize
it
of
of
the observed e x p o r t
to the normal quest
the evidence
also r e f l e c t s
the e x c e p t i o n a l l y
high risks
am c o n v i n c e d t h a t
of
b u t i o n to the f i n a n c i n g
community.
At
efforts
tively
i n programs
the
financing of
the g o a l s .
the establishment
of
banks,
such i n s t i t u t i o n s
i n the
should
This
contri-
black
the
main
one,
and
conviction
led
o f a new v e h i c l e
c o m m e r c i a l b a n k s may p a r t i c i p a t e
f i n a n c i n g and d e v e l o p m e n t
ghetto.
t h e y c a n make a m a j o r
f o r urban development,
banks
Progress
are addressed i s a c r i t i c a l
me two y e a r s ago t o s u g g e s t
the
the
I am a l s o c o n v i n c e d t h a t
means s h o u l d be f o u n d t o a c h i e v e
through which large
of
lending i n
o f economic development
t h e same t i m e ,
task to which t h e i r
that
of
by
inclined
the performance of b l a c k
the m u l t i p l i c a t i o n
n o t be e n c o u r a g e d i n t h e b e l i e f
I am
on t h e p a r t
An A l t e r n a t i v e Means o f F i n a n c i n g Community
I
funds
diversification.
presented here,
an e f f o r t
From t h i s a s s e s s m e n t o f
for
of
more
effec-
i n c l u d i n g not only
low-income housing p r o j e c t s but
s m a l l and m e d i u m - s i z e b u s i n e s s e s ,
the
also
particularly
18/
through the purchase of e q u i t i e s . —
I
think
the idea
repeating here.
There i s a l r e a d y a program f o r
small businesses
through State-chartered
companies under
tion.
18/
the supervision of
Banks a r e a u t h o r i z e d
See B r i m m e r ,
op.cit.,
29-33.
worth
financing
small business
the Small Business
to invest
pp.
the
is
i n the stock of
of
investment
Administracorporations
-33organized pursuant
to T i t l e
Development A c t and t o
small business
IX of
invest,
investment
any program under F e d e r a l
to a l i m i t e d
companies.
law t h a t
p a r t i c i p a t i o n by commercial banks
projects
and s m a l l b u s i n e s s
purchase o f e q u i t i e s .
not
themselves
i n v e s t m e n t by banks
However,
in
the
limited
in equities
of
exist
or p r i m a r i l y
of urban
particularly
purchase corporate
i n the
in stock
t h e r e does n o t
financing
enterprises,
exists
extent,
i s aimed s o l e l y
With certain
directly
A precedent
t h e 1968 H o u s i n g a n d U r b a n
renewal
through
exceptions,
at
the
b a n k s may
stocks.
f o r e i g n area
of business
for
indirect
enterprises.
Since
19/
1919, a s e c t i o n o f
the F e d e r a l Reserve A c t —
c h a r t e r i n g by the Board o f Governors o f
international
cial
or
operations
such c o r p o r a t i o n s .
under another
restrict
laws,
its
by t h e B o a r d .
"Agreement"
subject
operations
section of
stock of
international
or
stock
i n accordance w i t h
20/
S e c t i o n 25;
12 U . S . C .
12 U . S . C .
601-604a.
Edge,
corporations.
20/
corporations
limitations
are generally
611-631.
in
the F e d e r a l Reserve A c t —
similar
corporations.
Section 25(a);
t o a s "Edge 1 1
in
finan-
,
organized
t o an agreement by t h e c o r p o r a t i o n
These c o r p o r a t i o n s
19/
in
referred
the
t o engage
t h e p u r c h a s e b y member b a n k s o f
are generally
member b a n k s may i n v e s t
under S t a t e
for
B e c a u s e t h e l a w was s p o n s o r e d b y S e n a t o r
these c o r p o r a t i o n s
In addition,
corporations
f o r e i g n banking or o t h e r
and f o r
has p r o v i d e d
to
prescribed
referred
to
as
-34As p e r m i t t e d
Board,
the
Lnese c o r o o r a t i o n s
variety
of business
part
these
of
they
hotels,
realty
h a v e made e q u i t y
enterprises
ncldings
Nevertheless,
l a r j and s u b j e c t
represents
include
companies,
foreian
stock
countries.
Only a
the e q u i t y
financing
no l o g i c a l
r e a s o n why t h e y s h o u l d n o t be p e r m i t t e d
in
the United
indirectly
i n my o p i n i o n
t o do
the precedent
there
i n s u r e d S t a t e banks t o the e x t e n t
to stock of domestic
Reserve w i t h a u t h o r i t y
l o a n s and e q u i t y
conditions
corporations
assistance
necessary
and t o r e t a i l
i n our l a r g e
direct
and
of
cities.
s u c h a c o r p o r a t i o n m i g h t be w h o l l y
owned b y a s i n g l e
large
bank,
t h e r e w o u l d be no r e a s o n f o r w h i c h a number o f b a n k s
might
in its
organization.
Because b y t h e i r
very nature
the p r o j e c t s
t o be f i n a n c e d b y t h e c o r p o r a t i o n s w o u l d i n v o l v e
credit
risks,
it
to
Federal
through
t o t h e imporvement
and economic development
as
laws,
c h a r t e r e d by t h e
to housing p r o j e c t s
enterprises
as w e l l
While
join
is
legislation
p e r m i s s i b l e under S t a t e
to extend f i n a n c i a l
financing
wholesale business
not
in
likewise
o f Edge c o r p o r a t i o n s ,
m i g h t be e n a c t e d t h a t w o u l d a u t h o r i z e n a t i o n a l b a n k s ,
living
breweries.
States.
Following
subscribe
mills,
growers,
and
thus enabled to a s s i s t
of businesses abroard,
steel
tobacco
tanneries,
small
businesses.
companies,
sugar and f l o u r m i l l s ,
American banks a r e
the
i n a wide
in non-financial
restaurants,
of
investments
stock of appliance
c o n c r e t e a n d cement c o m p a n i e s ,
If
m
to regulations
m i g h t be n e c e s s a r y
to provide
and b u s i n e s s e s
more-than-normal
certain
tax
incentives
-35for
the o r g a n i z a t i o n o f
provided for
order
that
small business
investment
the c o r p o r a t i o n s
funds i n a d d i t i o n
it
the corporations
i n whole or
t o t h o s e now
companies.
Moreover,
in
m i g h t be e n a b l e d t o r a i s e
necessary-
through the issuance of
debentures,
to c a p i t a l
m i g h t be n e c e s s a r y
similar
to r e q u i r e
such d e b e n t u r e s
t o be
i n p a r t by the o r g a n i z i n g bank o r banks.
guaranteed
Consideration
21/
m i g h t e v e n be g i v e n t o s u c h g u a r a n t e e s b y F e d e r a l R e s e r v e
Any l e g i s l a t i o n
relatively
t h e k i n d h e r e s u g g e s t e d s h o u l d be
s i m p l e and u n c o m p l i c a t e d by u n n e c e s s a r y
The p r o p o s e d c o r p o r a t i o n s
other
of
powers n e c e s s a r y
s h o u l d be g i v e n l e n d i n g ,
to accomplish t h e i r
r e g u l a t i o n by the Board.
A t t h e same t i m e ,
to provide
limitations
bank's
some s t a t u t o r y
c a p i t a l and s u r p l u s
corporations,
tions
debentures
tions.
like
investment,
purposes,
it
subject
m i g h t be
enterprise,
to
desirable
in
the
proposed
corpora-
a n d u p o n t h e a g g r e g a t e amount
t h a t may be i s s u e d by t h e
i n v e s t m e n t s by t h e c o r p o r a t i o n s
t h o s e o f Edge c o r p o r a t i o n s ,
and
upon t h e p e r c e n t a g e o f a
t h a t may be i n v e s t e d
or other o b l i g a t i o n s
Equity
restrictions.
u p o n t h e amount t h a t may be i n v e s t e d by t h e
in a single
Banks.
corpora-
m i g h t be made
t o a p p r o v a l by the
of
subject,
Board.
21/
I t w i l l be r e c a l l e d t h a t u n d e r f o r m e r s e c t i o n 13b o f t h e
F e d e r a l R e s e r v e A c t , r e p e a l e d i n 1 9 5 8 , t h e R e s e r v e Banks w e r e
a u t h o r i z e d t o make l o a n s t o and p u r c h a s e o b l i g a t i o n s o f e s t a b l i s h e d
i n d u s t r i a l o r c o m m e r c i a l b u s i n e s s e s a n d t o p a r t i c i p a t e w i t h commerc i a l b a n k s , up t o 80 p e r c e n t , i n e x t e n s i o n s o f c r e d i t made by
banks t o such b u s i n e s s e s .
-36To make t h e c o r p o r a t i o n s
chartered only
business
if
have a minimum c a p i t a l
--
or only - -
their
that
vehicle
It
$2
in
to
enlarge
I am c o n v i n c e d
to warrant
for
best
economic
considera-
than
reliance
development.
Observations
theme o f
this
At
point,
I must
(especially
the s u b s t a n t i a l
in
particularly
some m a r g i n a l
evidence presented here - -
for a rapidly
young p e o p l e .
--
the p o s s i b i l i t y
the b l a c k community)
the establishment
consideration
p a p e r was s u m m a r i z e d a t
have b e e n s t a t e d i n e a c h
take note of
racial
pride,
Moreover,
as o r n a m e n t s
--
wish
For
is a
them,
positive
--
render
services.
the black
is,
of
to
t h e community
most o f
that
section.
some o b -
t h e s e b a n k s may a l s o
those circumstances,
m i g h t be v i e w e d p r i m a r i l y
and t h i s
financial
the
even i n t h e face
may s t i l l
g r o w i n g segment o f
although high-cost
But under
--
that
o f new b l a c k - o w n e d b a n k s .
s u c h b a n k s may be a s o u r c e o f
promising
t h e g h e t t o as v e h i c l e s
and i t s m a i n c o n c l u s i o n s
encourage
t h e a b o v e s u g g e s t i o n as t h e
t o be f a r more p r o m i s i n g
outset,
servers
of
million.
sufficiently
The c e n t r a l
this
Small
required
t h r o u g h w h i c h commercial banks can
c e r t a i n l y appears
on s m a l l banks
Concluding
of
is
t o u r b a n economic development,
the approach i s
tion.
s h o u l d be
minimum c a p i t a l .
a n Edge c o r p o r a t i o n
I do n o t a d v a n c e
contribution
they
c o m p a n i e s may be o r g a n i z e d w i t h a c a p i t a l
In contrast,
While
effective,
t h e y have a s u b s t a n t i a l
investment
only $150,000.
truly
banks
as a m a r k
of
-37distinction
o r a badge o f h o n o r w h i c h p r o v i d e s a v i s i b l e
acconplishment.
that
However,
such i n s t i t u t i o n s
t h e y s h o u l d n o t be m i s r e a d as
c o u l d become v i t a l
instruments
symbol
of
indicating
of
economic
development.
Expressed d i f f e r e n t l y ,
to small,
segment o f
high-cost
the market.
the large-scale
to
shops - -
But they a r e f a r
department
the community a t
speciality
t h e b l a c k b a n k s m i g h t be
large.
stores
catering
to a
compared
limited
from being analogous
offering a f u l l
range o f
to
services
B l a c k Banks i n the U n i t e d S t a t e s , by L o c a t i o n , Date Founded,
and T o t a l Assets, December 31* 1969
Table 1 .
Location
Name
1.
2.
3.
4.
56.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
21*.
Bank o f Finance
Carver S t a t e Bank
C i t i z e n s Savings Bank and T r u s t
Company
C i t i z e n s T r u s t Company
C o n s o l i d a t e d Bank and T r u s t Co.
Douglass S t a t e Bank
F i r s t Plymouth N a t i o n a l Bank
F i r s t S t a t e Bank
Freedom Bank o f Finance
Freedom N a t i o n a l Bank
Gateway N a t i o n a l Bank o f
S t . Louis
Independence Bank o f Chicago
I n d u s t r i a l Bank o f Washington
L i b e r t y Bank o f S e a t t l e
Mechanics and Farmers Bank
R i v e r s i d e N a t i o n a l Bank
Seaway N a t i o n a l Bank o f Chicago
Swope Parkway N a t i o n a l Bank
T r i - S t a t e Bank o f Memphis
U n i t e d Community N a t i o n a l Bank
U n i t y Bank and T r u s t Company
V i c t o r y Savings Bank
F i r s t Independence N a t i o n a l Bank
of Detroit
U n i t y S t a t e Bank
T o t a l Assets
December-1969
(Thousands)
Los Angeles, C a l i f o r n i a
Savannah, Georgia
1964
1947
$12,608
3,559
N a s h v i l l e , Tennessee
A t l a n t a , Georgia
Richmond, V i r g i n i a
Kansas C i t y , Kansas
M i n n e a p o l i s , Minnesota
Danville, Virginia
P o r t l a n d , Oregon
New York, New York
1904
1921
1903
1947
1969
1919
1969
1964
5,899
25,593
12,456
9,937
3,967
4,772
1,966
39,317
St. Louis, Missouri
Chicago, I l l i n o i s
Washington, D. C.
S e a t t l e , Washington
Durham, N o r t h C a r o l i n a
Houston, Texas
Chicago, I l l i n o i s
Kansas C i t y , M i s s o u r i
Memphis, Tennessee
Washington, D. C.
Boston, Massachusetts
Columbia, South C a r o l i n a
1965
1964
1934
1968
1921
1963
1965
1968
19^6
1964
1968
1921
8,642
13,095
21,688
3,266
21,555
6,648
21,700
8,093
10,314
7,738
12,967
3,015
D e t r o i t , Michigan
Dayton, Ohio
1/
June 30, 1970, P o l k ' s World Bank D i r e c t o r y .
2/
Ho o f f i c i a l c a l l r e p o r t .
http://fraser.stlouisfed.org/
Source:
Federal Reserve Bank of St. Louis
Date
Founded
May 1970
August 1970
C o n s o l i d a t e d Report o f C o n d i t i o n ( " C a l l R e p o r t " ) , December 31, 1969.
y
%/
3,268
N.A.
Table 2.
Black Banks 1 Share o f t h e Banking System i n the U n i t e d S t a t e s , 1969
(Amounts: A l l Banks, B i l l i o n s o f D o l l a r s ; Black Banks, M i l l i o n s o f D o l l a r s )
!
Category
Number o f banks
A l l Insured
Commercial Banks
13,473
Number o f employees
Average per bank
Black Banks
Amount
Per Cent
of Total
22
0.163
904,736
67.I
83.4
41.7
0.092
62.2
T o t a l assets
530.7
258.8
0.049
T o t a l deposits
Average s i z e o f bank ($ m i l l i o n s )
437-0
32.6
229.5
10.4
0.053
31.9
39-6
19.2
0.048
286.8
130.4
0.045
108.4
36.2
0.033
Real e s t a t e
70.3
46.9
0.067
Individuals
63.4
22.1
0.035
Total capital
T o t a l loans
Commercial and I n d u s t r i a l
Total
203.2
Negroes
(Amount)
22.7
(millions)i^
77.9
9.1*
Aggregate money income ($ b i l l i o n s ) ^
600.1
38.1
6.3
Ownerships o f s e l e c t e d assets by
households ($ b i l l i o n s ) § /
970.1
18.2
1.9
337-1
164.8
26.9
145.4
2.3
1.8
0.3
0.2
0.7
1.1
1.2
0.1
633.0
154.7
106.4
371.9
15.9
1.9
1.3
12.7
2-5
1.2
1.2
3.4
Memorandum
Population
Labor f o r c e
(millions)i/
F i n a n c i a l assets
Money i n banks
Government bonds
Corporate stocks
Other assets
Farm e q u i t y
Business e q u i t y
E q u i t y i n home
Source:
I
Per Cent
of Total
11.2
11,7
Consolidated Report o f C o n d i t i o n ( " C a l l R e p o r t " ) , December 31> 19^9
l/
U. S. Bureau o f t h e Census
2/
O f f i c e o f Economic O p p o r t u n i t y , 1967 Survey o f Economic O p p o r t u n i t y .
http://fraser.stlouisfed.org/
*
Refers t o
Federal Reserve Bank of St. Louis
a l l nonwhites.
Table 3.
Operating Costs I n Black Banks, By Size And Federal Reserve Membership, 1969
(Size Groups i n M i l l i o n s of Dollars)
Category
A l l Member Banks
Total
T o t a l Expenses as per cent o f :
operating income
T o t a l deposits
50 m i l l i o n
and over
10 t o 50
million
Under 10
million
Total
Black Banks
Black Federal Reserve Member Banks
A l l Black Banks
Total
10 t o 50
Under 10
10 t o 50
Under 10
million
million
million
million
78.1
5.6
78.1
5.7
78.2
78.2
if .8
93.3
6.5
95*2
6.5
88.U
6.8
92.1
6.7
93.3
6.3
88.5
7.5
2fc.O
3.8
10.0
23.6
3-9
10.1
21*.9
3.3
9-7
27.7
2.9
8.3
30.8
2.9
11.6
30.8
3.1
11-9
30.6
2.3
10.9
31.0
3.0
10.7
31.0
3A
UA
30.9
1.9
8.2
ko.k
39*8
W.o
M.5
28.7
29.3
27.3
27.2
30.6
19-9
3.6
3 A
3.1
3.1
3.1
3.2
3.2
3.1
9.7
6.9
k.6
k.l
3.0
3A
1.9
2,372
2,597
6
3
3
Labor costs (per cent o f
operating expenses)
Salaries and wages
O f f i c e r and employee b e n e f i t s
Overhead costs l /
Cost o f money
I n t e r e s t paid on time.and
savings deposits (per
cent o f operating expenses)
Average cost of money
(per cent)2/
Marginal cost o f money
(per c e n t ) i f
Number of Banks
k.k
-6.7 y
5,711
i/
lk2
19
9
10
1/
"Overhead expenses" include occupancy expenses of hank premises, f u r n i t u r e and equipment outlays, depreciation, r e n t a l costs, servicing, e t c .
2/
"Average cost o f money" i s defined as i n t e r e s t payments on time and savings deposits i n 1969 as a percentage of the average l e v e l o f such deposits outstanding
on December 31, 1968 and December 31, 1969.
2/
"Marginal cost o f money" i s defined as the change i n i n t e r e s t payments i n 1969 expressed as a percentage of the change during 1969 i n the l e v e l of deposits
outstanding as defined i n footnote 2.
kj
The negative f i g u r e s f o r a l l member hanks and f o r member hanks w i t h over $50 m i l l i o n i n deposits r e f l e c t the sharp decline i n the volune of outstanding large
denomination c e r t i f i c a t e s of deposits (CDrs) i n 19^9 v h i l e t o t a l i n t e r e s t payments rose.
Source:
Consolidated Report of Condition ( " C a l l Report"), December 31> 19&9*
?::ble k .
S e l e c t e d O p e r a t i n g C h a r a c t e r i s t i c s and Loss E x p e r i e n c e o f B l a c k Banks, By S i z e and F e d e r a l Reserve Membership, 1969
(Amounts: A l l Member Banks, B i l l i o n s o f D o l l a r s ; B l a c k Banks, M i l l i o n s o f D o l l a r s ; Outstandings as o f December 3 1 , 1969)
( S i z e Groups i n M i l l i o n s o f D o l l a r s )
A l l Member Banks
Category
Total
T o t a l deposits
T o t a l l o a n s and s e c u r i t i e s
O p e r a t i n g expenses, 1969
Net income, 1969
330.6
Over 50
million
10 t o 50
million
Under 10
million
Total
A l l B l a c k Banks
10 t o 50
million
B l a c k Banks
B l a c k F e d e r a l Reserve Member Banks
Under 10
Total
10 t o 50
Under 10
million
million
million
242.9
19.5
3.5
284.2
203.4
16.1
2.8
51.7
31.1
2.7
.5
14.7
8.4
0.7
.1
229.5
210.9
15.0
.8
170.6
154.5
11.0
.5
58.9
56.4
4.0
.3
106.2
97.7
7.1
•5
75.7
69.1
4.8
.3
30.5
28.6
2.3
.2
Reserves on l o a n s and s e c u r i t i e s
Per c e n t o f t o t a l loans and
securities
5.3
4.6
.6
.1
.8
.6
.2
•3
.2
.1
2.2
2.3-
1.9
1.2
.4
.4
.4
•3
•3
.4
Reserves f o r bad debts
5.1
4.4
,6
.1
.7
•5
.2
•3
.2
.1
2.1
2.2
1.9
1.2
.3
.3
.4
•3
.3
.4
.4
.3
.1
1.1
.7
.3
.6
•3
.3
2.1
11.4
1-9
10.T
3.7
20.0
7.3
137.5
6.4
140.0
7.5
100.0
8.5
120.0
6.3
100.0
13.0
150.0
Per c e n t o f t o t a l loans
Provision f o r loan losses,
1969
Per c e n t o f o p e r a t i n g expenses
Per cent o f net income
Source:
C o n s o l i d a t e d Report o f C o n d i t i o n ( " C a l l R e p o r t " ) , December 31, 1969.
.03
4.3
30.0
Table 5..
P r o f i t a b i l i t y of Black Banks, By Size and Federal Reserve Membership, 1969
(Size Groups i n M i l l i o n s of Dollars of Deposits)
Category
A l l Member Banks
Black B<mks
Black Federal Reserve Member Banks
A l l Black Banks
Total
10 t o 50
Under 10
10 t o 50
Under 10
million
million
million
million
Total
50 m i l l i o n
and over
10 t o $0
million
Under 10
million
Total
Cur^^m operating income ac per •.,ent of
T c ^ r assets
Capital accounts
1.27
17.1
1.26
18.9
1.25
16.2
1.22
13.3
0.37
5.1
0.31
4.8
0.55
5*7
0.43
5.8
0.39
7.1
0.49
5.2
Income a f t e r taxes as per cent of
Total assets
Capital accounts
O.85
11.4
0.84
12.5
O.89
11.5
0.90
9.9
0.28
3.9
0.22
3.4
0.47
4.8
0.34
4.7
0.30
5.4
0.45
4.8
Net income as per cent of
Total assets
Capital accounts
0.80
10.8
O.78
11.7
0.87
11.2
0.87
9.6
0.31
4.2
0.25
3.8
0.48
4.9
0.34
4.6
0.29
4.5
0.45
4.9
Rate of return on selected assets
(Per cent)
T o t a l loans
7*2
7.3
7-0
7.0
7.3
7.2
7.5
7.5
7.3
8.3
Securities
U. S. Government
State and Local Government
Other securities
5.3
3.9
6.1
5.3
4.0
6.3
5.4
3.5
5.7-
$.3
3.2
3-7
5.7
2.7
0.6
5.8
2.6
0.3
5.4
3>0
$.9
6.0
2.2
3.6
6.1
2.2
2.6
5.6
0.0
5.7
85.3
85.O
86.8
86.3
78.7
80.6
73.8
74.0
79.0
58.6
68.4
69.8
62,2
58.5
53.5
53.0
54.8
50.2
51.4
46.7
3.3
2.9
5.0
4.7
11,6
11.4
12.2
13.2
12.3
15.8
Selected Sources of Operating Income
(Per cent)
^ J l
i n t e r e s t income
Interest on loans
Service charges
Source:
Consolidated Report of Condition ( " C a l l Report"), December 31, 1969.
Table 6 .
S u p e r v i s o r y E v a l u a t i o n o f Black Banks, 1967, 1968> and 1970
Criteria
C a p i t a l Adequacy
1967
1968
1Q70
A««et Q u a l i t y
1967
1968
1970
Management Performance
1967
1968
1970
Composite R a t i n g
1967
1968
1970
Rat:Lng Category
Group 1
10
7
Ik
Class A
5
7
12
Satisfactory
k
5
9
Group 1
3
k
12
Group 2
3
2
k
k
3
5
Class B
6
3
k
Fair
10
6
6
Group 2
7
5
5
Total
Group 3
15
15
22
Class C
Class D
3
1
1
0
k
6
Total
15
15
22
Total
Poor
1
15
15
22
k
7
Group 3
Group k
6
5
1
0
0
Total
15
15
22
Table 7-
Category
A s s e t E v a l u a t i o n and Composite R a t i n g o f B l a c k B a n k s ,
and a Sample o f F e d e r a l Reserve S t a t e Member B a n k s ,
1967, 1968, and 1970
Rating Class
Total
Composite Rating
1
2
I
k
F . R. Member
Sample (1967)
Nisaber
Per cent
677
100.0
1*39
65.O
211
30.8
2k
3
0.6
Black Banks
1967 Number
Per cent
15
100.0
3
20.0
7
U6.6
k
26.7
1
6.7
1968 Number
Per cent
15
100.0
5
33.3
6
1*0.0
0
0.0
1970 Number
Per cent
22
100.0
12
5
22.8
5
22.8
0
0.0
A
B
C
D
677
100.0
536
79-5
106
15.7
25
3.7
10
1.1
1967 Number
Per cent
15
100.0
5
33.3
6
Uo.o
3
20.0
i
6.7
1968 Number
Per cent
15
100.0
7
k6.6
3
20.0
197O Number
Per cent
22
100.0
12
5U.4
18.2
Asset Ratine
F. R. Member
Sample (1967)
Number
Per cent
k
26.7
3.6
Black Banks
01
26.7
1
6.7
0
0.0
k
k
Table 8.
E v a l u a t i o n o f Bank Loans, By Q u a l i t y and Size o f Bank, as Shown i n Examination Reports o f
Selected F e d e r a l Reserve Member Banks, 1964-1969
(Size Groups i n M i l l i o n s o f D o l l a r s )
(Amounts In M i l l i o n s of D o l l a r s )
Category
Nutuuer o f banks
Gross loans
C l a s s i f i e d loans:
Substandard
Per cent o f gross loans
1964
Under 10
million
10 t o 50
million
5,666
4,012
1,654
27,365
8,971
18,39^
Total
327
1.19
Doubtful
Per cent o f gross loans
31
Loss
Per cent o f gross loans
35
T o t a l c l a s s i f i e d loans
Per cent o f gross loans
.11
.13
39^
1.44
Loans s p e c i a l l y mentioned
Per cent o f gross loans
156
V a l u a t i o n reserves on loans
471
T<
c a p i t a l accounts
127
1.42
11
13
.12
.14
151
1.68
.55
•57
120
4,977
200
1.09
20
22
.11
.12
10 t o 50
million
5,099
2,813
2,286
5,425
3,486
1,939
M,599
8,580
33,019
33,007
9,147
23,860
Total
470
1.13
55
50
.13
.12
243
1.32
575
1.38
107
185
.58
Six-Year Average
Under 10
10 t o 50
million
million
• 1969
Under 10
million
.44
136
1.59
15
16
.17
33*
1.01
40
.12
Total
424
1.28
16
48
.15
46
•19
.10
167
1.95
408
1.23
518
1.57
39
146
159
.44
143
1.56
.14
.48
17
.18
.19
1T5
1.92
45
.50
?.8l
1.19
32
29
.13
.12
3*3
1.44
114
351
610
115
495
5*1
122
419
3,037
5,614
1,^95
^,119
5,279
1,774
3,505
.48
C l a s s i f i e d loans as per cent
of t o t a l c a p i t a l
7-9
7-8
8.0
10.2
11.2
9.9
9.8
10.0
9-7
S p e c i a l l y mentioned loans as
per cent o f t o t a l c a p i t a l
3.1
2.5
3.5
3.3
2.6
3.5
3.0
2.6
3.2
C l a s s i f i e d and s p e c i a l l y
mentioned loans as
per cent o f t o t a l c a p i t a l
11.1
10.3
11.5
13-5
13.8
13*
12.8
12.6
12.9
Table 9*
E v a l u a t i o n o f Bank Toans, By Q u a l i t y and Size o f Bank, as Shovn i n Examination Reports o f
Black Banks, I 9 & - I 9 6 9
(Size Groups i n M i l l i o n s o f D o l l a r s )
(Amounts i n Thousands o f D o l l a r s )
Category
Number o f Banks
Gross loans
Total
21
15
6
16
12
4
33,751
16,139
17,612
112,061
56,3*1
55,720
63,731
33,814
29,917
•11
.08
244
1.51
12
6
.07
.04
22
.15
1,243
2.21
1,740
3.12
1,551 ,
2.43
365
83
282
449
701
•63
4,049
3.61
305
1.73
4
4
0
1,029
.01
.02
.33
.12
262
1.62
•92
273
.15
.48
428
•51
•77
445
.70
.70
824
2.44
727
2.43
269
180
230
.80
.64
,160
215
2,450
4.40
2,446
3.84
1,323
3.91
1,123
3.75
507
522
361
221
140
•90
•9*
•57
.65
83
206
694
366
328
376
148
228
6,826
k,171
2,655
17,438
9,291
8,147
11,496
6,830
4,666
6.3
S p e c i a l l y mentioned loans as
per cent o f t o t a l c a p i t a l
.1
•1
8.4
6.4
.70
1,599
2.84
289
8.3
26
2,983
2.66
567
1.68
C l a s s i f i e d loans AS per cent
of t o t a l capital
C l a s s i f i e d and s p e c i a l l y
mentioned loans as
per cent o f t o t a l c a p i t a l
3
501
1.48
28
T o t a l c a p i t a l accounts
Total
f>ix-Ye»r Average
Itoder 10
10 t o 50
million
million
3
toss
Per cent o f gross loans
V a l u a t i o n reserves on loans
Total
10 t o 50
million
8
38
loans s p e c i a l l y mentioned
Per cent o f gross loans
1969
Under 10
million
11
Doubtful
Per cent o f gross loans
T o t a l c l a s s i f i e d loans
Per cent o f gross loans
10 t o 50
million
CM
C l a s s i f i e d loans:
Substandard
Per cent o f gross loans
19&
Under 10
million
.47
23.2
17.2
30.1
21.3
IB .6
22.0
0
5.9
5.5
6.4
3.1
3.2
3.0
U.5
29.1
22.7
36.5
24.4
21.5
25.0
11.5
Tabic
10.
Composition o f S e l e c t e d A s s e t s and L i a b i l i t i e s o f B l a c k Banks, By S i z e
and F e d e r a l Reserve Membership, December 3 1 , 1969
(Deposit Size i n M i l l i o n s o f D o l l a r s )
A l l Member Banks
Category
Total
Composition of deposits (per cent
of t o t a l )
Total
Demand
Time and savings
Composition of assets (per cent
of t o t a l assets)
Cash and due from banks
Securities:
U. S. Government
State and Local Government
Loans:
Total
Federal funds sold
Loans t o f i n a n c i a l i n s t i t u t i o n s
Loans t o purchase or carry
securities
Commercial and i n d u s t r i a l
Real estate
Individuals
Farmers
A l l other loans
Bunk premises, f u r n i t u r e , and
I'!:: lures
50 m i l l i o n and over
10 t o 50
million
Under 10
million
Total
BiacK Baffles
A l l Black Banks
Black Federal Reserve Member Banks
10 t o 50
Under 10
Total
10 t o 50
Under 10
million
million
million
million
100.0
57.0
43.0
100.0
59.3
40.7
100.0
46.6
53.4
100.0
48.4
51.6
100.0
48.8
51.2
100.0
49.6
50.4
100.0
46.6
53.4
100.0
51.5
48.5
100.0
18.2
19.2
13.3
13.6
12.5
12.7
11.9
12.7
11.4
17.6
10.2
10.5
8.4
10.1
17-1
13.2
23.2
9.7
23.8
20.7
9.3
22.6
3.1
17.1
9.8
16.1
12.3
N 9.2
7.7
54.4
55.2
50.9
47.5
45.O
43.8
48.6
41.6
41.7
41.2
1.3
3.7
1.5
4.4
0.5
0.6
0.5
0.2
0.7
1.7
0.8
0.6
1.0
0.8
3.5
0.8
3.7
0.1
2.3
2.0
2.3
0.6
0.4
0.9
1.1
0.5
2.1
2.3
1.4
22.2
12.2
24.5
11.3
11.7
8.0
8.9
20.1
12.4
20.2
10.0
6.6
8.6
13.9
12.7
16.1
8.7
8.1
9.9
23.4
11.1
10.1
0.6
16.9
14.1
13.7
1.9
9.7
19.9
19.1
49.6
50.4
100.0
58.9
41.1
-
1.7
16.4
3.6
0.7
1.5
1.4
1.6
1.4
4.1
4.6
2.4
5.8
6.8
1.8
67.2
69.7
57.4
53.3
50.6
49.0
55.4
47-7
47.7
47.^
10.3
10.1
10.8
13.4
11.2
10.1
14.2
11.0
9.6
16.5
1.4
1.5
10.0
0.7
-
-
0.7
0.5
1.0
0.7
0.7
0.6
-
Memorandum:
Loan/deposit r a t i o
C a p i t a l / r i o k nssel
flour o:
ratio
Con:: Ml Ida tec' Report of Condition ( " C a l l Report"), December 31> 1969.
Table 11.
Selected C h a r a c t e r i s t i c s o f Loans Outstanding a t Black Banks
as Shown i n Examination Reports, 1970
(Amounts i n Thousands o f D o l l a r s j Deposit Size i n M i l l i o n s o f D o l l a r s )
Category
Total
Size o f Bank
10 t o 50
million
193,126
Under 10
million
T o t a l assets
26^,563
T o t a l loans
Amount
Per cent o f t o t a l assets
137,535
52.0
9^,295
1*8.8
1*3,21*0
60.5
Toans t o l o c a l borrowers
Amount
Per cent o f t o t a l assets
Per cent o f t o t a l loans
107,552
1*0.7
78.2
77,165
1*0.0
81.8
30,387
1*2.5
70.3
Loans t o other borrowers
Amount
Per cent o f t o t a l assets
Per cent o f t o t a l loans
29,963
11.3
21.8
17,130
8.9
18.2
12,833
18.0
29.7
Federal funds s o l d
Per cent o f t o t a l loans
15,875
11.5
7,1*00
7.9
8,1*75
19.6
P a r t i c i p a t i o n s purchased
Per cent o f t o t a l loans
7,888
5.7
3,530
3.7
M58
10.1
Brokers loans, commercial
paper, bankers acceptances
Per cent o f t o t a l loans
6,200
6,200
6.6
Commercial and i n d u s t r i a l loans
Amount
Per cent o f t o t a l assets
Per cent o f t o t a l loans
36,211*
13.7
26.3
20,727
10.7
22.0
15,^87
21.7
35-8
L o c a l borrowers
Per cent o f conmercial and
i n d u s t r i a l loans
28,326
17,197
11,129
P a r t i c i p a t i o n s purchased
Per cent o f conmercial and
i n d u s t r i a l loans
7,888
78.2
21.8
83.O
3,530
17.0
71,^37
-
71.9
^,358
28.1
T a b l e 12.
Principal Assets of Black Banks, December 31, 1969
(Thousands of Dollars)
Cash & Due
From Banks
(2)
Name of Bank
Total
Assets
(1)
(1) Bank of Finance
$ 12,608
$ 1,676
(2) Citizens Savings Bank
and Trust Company
5,899
(3) Citizens Trust Company
CO Consolidated Bank and
Trust Co.
(5) Douglass State Bank
(6) F i r s t State Bank
U. S.
Treasury
Securities
(3)
Securities of
Gov't. Agencies
and Corns.
(*)
$
-0-
Federal
IWff
(6)
Other
(7)
Bank
Premises
and
Future
.(8)
Real Estate
(other than
Premises)
(9)
*
206
Other
Assets,
$ -0-
$ 7,876
15
-0-
2,262
31
-O-
1
39*
8,932
-0-
7,891
*,7*2
117
192
1,050
1,289
-0-
6,751
253
-0-
55
5*>
736
525
5,968
*78
-0-
*6
792
$ 1,230
1,085
850
1,655
25,593
2,3*8
977
12,*56
1,999
1,059
9,937
581*
1,090
k
*9*
39*
$
Obligations
of States
and P o l i t i c a l
, Subdivisions
(5)
-O-
622
$
575
$
253
550
2,550
5*
3
105
(7) Freedom National Bank
39,317
M36
7,220
5,768
-0-
3,000
16,929
592
639
533
(8) Gateway National Bank
of St. Louis
8,6*2
1,119
1,63*
780
-0-
-0-
*,7*8
2*3
-O-
U8
21,688
1,705
*,527
2,997
3,266
183
21,555
2,000
(9) I n d u s t r i a l Bank of
Washington
(10) Liberty Bank of Seattle
(11) Mechanics and Fanners Bank
f
m
-0-
268
2,862
300
7,380
53*
63
1,320
-0-
300
2,265
220
-0-
30
-o-
9,*12
822
1
210
1,000
3,158
197
-O-
82
193
3,323
-3,650
817
79*
600
21,700
2,968
2,8*0
2,000
1,76*
-Q-
11,355
580
-0-
8,093
2,069
1,320
-O-
-0-
-0-
*,577
102
-0-
25
(15) Tri-State Bank of Memphis
10,31k
655
2,573
199
300
5,886
259
13*
158
(16) The Independence Bank of
Chicago
13,095
1,97*
967
3,503
-0-
1,300
5,0*3
127
u
170
(IT) F i r s t Plymouth National
Bank
1,238
-0-
-0-
1,000
(12) Riverside National Bank
6,6*8
(13) Seaway National Bank of
Chicago
(lU) Swope Parkway National
Bank
3,967
298
(18) The Carver State Bank
3,558
388
1,512
(19) United Conmunity National
Bank
7,738
1,076
712
12,967
3,760
825
(?1) Victory Savings Bank
3,015
192
51*
(:*) Freedom Bank of Finance
1,966
31*8
8*0
$258,791*
03?, 37'*
$36,001
(20) Unity Bank and Trust
Company
Grand Total
100
-0385
*33
-0$25,522
Hour-**: i!or»::«/lidaU"J Koport of* Condition ("Call Report"), December 31, 1969.
2,137
.0-
150
1,328
36
-0-
67
-0-
1,271
*6
-0-
-0-
-0-
*,175
1,535
118
-0-
122
-0-
1,000
6,6*5
25*
-0-
98
300
1,300
1*1*
5
22
*75
6*
187
-0-
52
$1*,225 $116,19*
$10,1*91*
$1,179
$3,852
2*1
205
-0$13,953
Table 13.
Kame of Bank
( l ) Bank of Finance
Total
Liabilities
(l)
Total
Deposits
$ 12,608 $ 11,1*36
Demand
Deposits
$ 5,9*0
Time
Deposits
(IPC)
(*)
$
3,903
Deposits
of U. S.
Gov't.
(5)
$
670
Deposits of
State and
Political
Subdivisions
(6)
$
Deposits of
Conmercial
Banks
(7)
38*
Certified
Checks
(8)
$ 539
Other
Liabilities
(9)
Capital
Account
(10)
$
$
Memo Items
Total
Total
Demand
Deposits
Deposits
(12)
(13)
Reserves on
Loans and
Securities
(11)
$
*,158
5,373
2,**1
-
2,931
179
18,851
10,*8*
8,367
107
11,262
*,709
6,553
1*
8,80*
3,801
5,003
30
*,203
1,251
2,952
$ 11,*36
***
-0-
396
2,567
5*
1,033
718
5,899
5,373
2,038
2,667
271
366
-O-
31
82
(3) Citizens Trust Company
25,593
18,851
9,090
7,938
60*
910
-0-
309
(b) Consolidated Bank and
Trust Co.
12,*56
11,262
3,07*
6,553
1,251
315
-0-
69
(5) Douglass State Bank
9,937
8,80*
2,858
*,222
392
1,165
1*
153
101
81*
(6) F i r s t State Bank
*,772
*,203
950
2,910
268
*2
-0-
33
118
*21
$
Total
Timed
Savings
W
7,278
5
**9
(2) Citizens Savings Bank
and Trust Company
$
(7) Freedom National Bank
39,317
36,731
13,037
15,960
2,179
*,703
65
787
73*
1,852
-0-
36,731
17,571
19,160
V Eateway National Bank
^ " of St. Louis
8,61*2
7,623
2,918
3,5*6
192
769
-0-
198
227
*5*
20
7,623
3,752
3,871
21,688
20,1*10
7,*72
11,717
1,031
-0-
190
331
9*5
2
20,U10
7,*7&
12,938
3,266
2,658
925
1,230
221
225
15
*2
51
*51
18
2,658
1,328
1,330
21,555
19,*55
6,6*1
9,2U0
912
2,155
-0-
507
23*
1,*39
1*8
19,*55
8,990
10,*65
(12) Riverside National Bank
6,61*8
5,910
1,996
2,626
729
*28
-o-
131
58
676
2
5,910
3,039
2,871
(13) Seaway National Bank of
Chicago
21,700
20,1*7
8,*08
9,811
709
90*
23
292
lK>3
1,101
*9
20,1*7
9,*3*
10,713
( l * ) Swope Parkway N a t i o n a l
Bank
8,093
7,113
2,711
2,022
1*22
1,7*0
*0
178
2*7
703
30
7,113
5,066
2,0*7
10,3H*
9,05*
2,757
*,701
606
880
-0-
HO
362
81*3
55
9,05*
3,638
5,*16
13,095
12,199
*,778
5,399
85*
987
-0-
iBl
107
788
1
12,199
5,899
6,300
(9) Industrial Bank of
Washington
(10) L i b e r t y Bank o f S e a t t l e
(11) Mechanics and Fanners
Bank
(15) Tri-State Bank of Memphis
( l o ) The Independence Bank o f
Chicago
^
principal L i a b i l i t i e s , Reserves and Capital of Black Banks, December 31, 1969
(Thousands of Dollars)
-0-
'
(17) F i r s t Plymouth National
Bank
3,967
3,*12
1,128
1,005
1,1*7
*1
30
61
97
*53
5
3,*12
2,li07
1,005
( I B ) The Carver S t a t e Bank
3,558
3,211
*83
1,860
206
621
8
33
20
316
11
3,211
777
2,*3*
7,738
6,*87
2,719
3,102
585
-0-
81
82
1,118
51
6,*87
3,376
3,111
12,967
11,0*5
*,1B1
3,707
798
*35
80
1,8**
656
1,210
56
11,0*5
6,979
*,067
1,*27
212
238
-0-
32
*8
219
27
2,721
1,1*9
1,572
^
U n i t e d Community N a t i o n a l
Bank
(20) Unity Bank and Trust
Company
-0-
(21) V i c t o r y Savings Bank
3,015
2,721
812
(22) Freedom Bank o f Finance
1,966
1,37*
**2
229
397
302
-0-
*
3
589
-0.
1,37*
8*5
529
$258,79* $229,*79
$85,358
$105,775
$1*,656
$17,610
$275
$5,805
$*,86o
$19,156
$800
$229,*79
$111,686
$117,793
Grand T o t a l
Source:
Consolidated Report o f C o n d i t i o n ( " C a l l R e p o r t " ) , December 31, 1969.
@FedFRASER