Making Black banks matter

Kevin Cohee has a vivid memory—one of his earliest—from when he was about 4 years old, hanging out in the basement of his house in Kansas City, Mo. It was the early 1960s, and his uncles were there with some friends; some of them entrepreneurs (one uncle owned a pharmacy), all active in the civil rights protests of the era. As they plotted the future, one man pulled Cohee aside—he was the only kid present—and gave him a mandate: “That we didn’t need more Black men to fight on the streets; that we needed Black men to control institutions—like a bank,” recounts Cohee.   

Cohee, who calls himself “a child of the Black Panther party,” ended up owning not just one bank, but several. After graduating from Harvard Law, his career took him from investment banking at Salomon Brothers to a successful leveraged buyout and turnaround of a financial services firm in the late ’80s. He and his wife, Teri Williams, a former exec at American Express, used their newfound riches to acquire the struggling Boston Bank of Commerce in 1995. Over the next seven years, they purchased three more banks in African-American communities in Florida and California, creating a chain that they rechristened OneUnited Bank in 2002. Today OneUnited is the largest Black-owned bank in the U.S. by number of customers. And with Kevin serving as CEO and Teri as president and COO, the Cohees are something akin to the industry’s first couple—at a pivotal time in its evolution.  

Black community leaders have been advocating for Black-owned banking ever since Emancipation, even more so since the civil rights reforms of the 1960s. The thesis: Banks operated by Black people would help communities that left slavery with scratch build wealth, unimpeded by the prejudice and suspicion of white bankers. Black ownership would further ensure that profits made off of Black money would stay in the fold. And Black banks would extend credit to borrowers that the big national banks perceived as too risky owing to their modest means. In his very last speech before he was assassinated, Martin Luther King Jr. enjoined his followers to pull their money “out of the banks downtown” and deposit it in a Black-owned bank. “We want a ‘bank-in’ movement,” he said.

Black banks proliferated in the 1970s with encouragement from lawmakers and regulators. (The Federal Deposit Insurance Corp.’s definition of a minority depository institution includes Black-owned banks—51% or more of whose stock is held by Black individuals—as well as Black-led banks, which serve a minority demographic and have boards on which more than half the directors are Black.) But the money didn’t follow. The same systemic barriers that kept Black communities from accumulating assets before civil rights—real estate “redlining,” unequal access to education and jobs—kept the national wealth gap wide. And that created a vicious circle: Depressed income levels constrained deposits, limiting Black banks’ local impact. Black business owners and homebuyers might depend on a community bank for a lifeline, but the banks had only so much to loan; they also failed at a higher rate than their peers. Today, America’s 20 Black banks combined have fewer than $5.5 billion in assets—an infinitesimal fraction of the banking universe. (At the end of June, JPMorgan Chase alone had $3.2 trillion in assets.)

But the arrows may finally be pointing upward. Amid protests against systemic racism following the police killing of George Floyd, the “Bank Black” movement has gone mainstream, transforming Black financial institutions as it prompts individuals and even Fortune 500 companies to reconsider how they manage their money. At least a half-dozen companies have committed roughly half a billion dollars to Black banks, seeing them as an efficient, fiscally sustainable way to boost Black communities with relatively little risk. “We’re not asking you for contributions. We’re just asking you to put your money into a bank,” says Williams. “We lend it to the community in ways that build wealth. And we also use the platform to send a message to ourselves, and to the world.”

While the sum is small relative to corporations’ balance sheets, it’s a needle-moving amount for Black-owned banks. As online banking and racial-justice activism route deposits their way at an unprecedented rate, the Cohees and their peers envision reaching a critical mass of resources, anchoring the Black economy with more plentiful and affordable mortgages and small-business loans. “It’s an instrument of social change on a wide-scale basis,” Kevin says of his bank, adding emphatically: “And as a result, OneUnited Bank will solve the racial wealth gap.”

Owning a bank and joining the economic elite have not exempted the Cohees from the repercussions of the American racial minefield. Police once pointed a gun at Teri as she parked her car in Miami. In June, Kevin was pulled over in his Range Rover by the LAPD on his way to speak at a virtual Fortune event—a panel on the inherent dangers of “Banking While Black.” “Pretty much every aspect of the Black American experience, I’ve lived and experienced the negative outgrowth,” says Kevin, whose Los Angeles office is decorated with wall-size paintings of Dr. King and Malcolm X. “And that’s as a person who had lots of things.”

Nor has a social mission always been enough to keep OneUnited afloat, or to shield it from criticism. The bank received bailout funds in 2008 after its Fannie Mae and Freddie Mac shares soured. Regulators reprimanded the bank for lavish perks it provided the Cohees, including a Porsche and a beachfront house allowance. OneUnited was then caught up in a barrage of bad publicity related to its ties to Rep. Maxine Waters, a controversy that brought to light Kevin’s past scrapes with the law. He had been arrested twice in a month in 2007, on suspicion of sexual assault and drug possession. No assault charges were ever filed, and the narcotics charge was dropped after he agreed to attend counseling. (Cohee has denied both accusations. “As most Black men in America, I have had interactions with law enforcement and have no convictions,” he told Fortune in a statement. “That said, I continue to strive to make better personal and professional decisions.”)

Burdened by these setbacks, it was only a few years ago that OneUnited perhaps began to hit its stride. It started with a wall, outside OneUnited’s Miami branch. Teri commissioned the artist Addonis Parker to paint something there to “reflect the authentic urban experience.” She didn’t see it until a couple of days before the unveiling, in July 2015; when she did, she was shocked. The mural featured portraits and names of Black men and boys who’d been killed by police or vigilantes—Trayvon Martin, Michael Brown, Tamir Rice—along with provocative symbolic images, such as a Black woman handwashing blood out of a Confederate flag in front of the Charleston, S.C., church where nine African-Americans had been massacred weeks earlier. 

Photograph by Jeffery Salter

In Teri’s head were warnings from other Black businesspeople: “If you say you’re Black, Black people aren’t going to want to bank with you, and white people aren’t going to want to bank with you.” But she let the mural go up, and it brought mostly positive attention to OneUnited. With a new brand identity, its business began accelerating. “It was a bank saying, ‘Hey, this is what’s happening to us. We are being shot in the street,’ ” Teri says. Soon, OneUnited adopted a new tagline: “Unapologetically Black.” 

OneUnited’s revival coincided with a broader cultural movement. In July 2016, in a televised “town hall” hosted by MTV and BET, rapper Killer Mike appealed to Black viewers to “take our warfare to financial institutions,” kicking off a viral text-message chain urging Black consumers to move their money to Black-owned banks. OneUnited pounced: Eleven days later, it trademarked the phrase “BANKBLACK.” The message, according to Teri: “Black money matters, Black lives matter, we matter.”

The events of 2020 have ignited that movement into a small-scale revolution. Since Floyd’s death in May, OneUnited’s account base has more than doubled, to an estimated 120,000 customers, with an additional $50 million in deposits. Other banks have fared even better. In the second quarter of this year, Liberty Bank and Trust, based in New Orleans, overtook OneUnited as the largest Black-owned bank by assets (with $737 million to OneUnited’s $685 million). Liberty’s deposits grew by a staggering 19% in those three months, or more than $101 million—five times the increase it normally tallies in a year. “It’s exciting for me to see this change, and to see this growth that has happened almost overnight,” says Alden McDonald Jr., Liberty’s CEO since its founding in 1972.

Part of this surge has come from grass roots. A church group on the West Coast, for example, approached Liberty, then invited its 1,000 affiliated churches to bank there too. But just as crucial is a corporate endorsement of #BankBlack. 

In late June, Netflix made waves by saying it would put $100 million—2% of its cash deposits—into Black financial institutions, starting with a new Black Economic Development Fund it founded with the Local Initiatives Support Corp. (LISC), a community-development nonprofit. In August, Costco matched Netflix’s $25 million infusion. By the time it officially launches in October, LISC expects the fund to have at least $100 million, eventually growing to as much as $250 million, with much of it earmarked for deposit in Black-owned banks. PayPal, which in the spring said it would devote more than $500 million to Black communities and businesses, now says most of that will involve shifting deposits to banks that are Black-owned or focused on minority communities. (For other examples, see sidebar.)

Deposit-shifting appeals to companies as a way to deploy more cash to the social-justice cause than they could simply give away as grants or donations. “The way we were thinking about it is, how can we do something without really doing anything?” says Netflix treasurer Shannon Alwyn. Alwyn attributes some of the inspiration to Mehrsa Baradaran’s 2017 book The Color of Money: Black Banks and the Racial Wealth Gap. Netflix’s free cash flow is negative, but it did have $5 billion in cash on hand. Says Alwyn: “Could we take that excess cash and just put it somewhere else? And then it’s doing something.”

It’s a philanthropic-minded approach, but it’s not charity. Deposits may change banks, but they don’t change owners, and companies can expect to get them back—generally with interest. In early September, Biogen, the Boston-based biotechnology firm, switched $10 million of its deposits to OneUnited, intending the dollars to strengthen hometown communities from which Biogen draws talent. “This is not going to cost us, quite the opposite,” says Chirfi Guindo, Biogen’s executive vice president of global product strategy and commercialization, adding that the company hopes to move more. “We believe that your good old capitalist approach is also important,” adds Guindo, an immigrant from Mali who identifies as Black, calling the switch a “win-win.”

Some reform advocates question how much of an impact moving money to Black-owned banks will have. They point to ongoing actions by big banks whose effects are discriminatory and widespread—including closing branches in low-income areas, a rising concern as the impact of the coronavirus pandemic blights more neighborhoods. “It is actually ironic that my book has inspired companies to invest capital in Black-owned banks, because that’s actually not the point,” Baradaran tells Fortune. She puts greater emphasis on shunning practices that perpetuate oppression and poverty, like imposing higher interest rates on borrowers with subprime credit: “That was Martin Luther King’s aim—it wasn’t just to invest in Black-owned banks; it was also to boycott.”

And deposits themselves can be as much a curse as a blessing. Deposits show up as liabilities on bank balance sheets: Banks owe interest to depositors, so the money is a drag on an institution’s financial metrics until the bank can loan it out and collect interest revenue. Smaller banks with limited resources may not be able to lend capital as fast as it is deposited. For that reason, some Black-owned banks have actually had to turn down deposits from companies. “What you need to do to grow a bank is to grow all sides of the bank,” says George Ashton III, managing director of strategic investments for LISC. 

To address this quandary, LISC is using its Netflix-founded fund to provide loan capital to banks, as well as deposits. Other #BankBlack backers are considering equity investments, such as the $50 million Bank of America recently announced it would put in three banks (taking a 5% stake in each). The extra assets shore up a bank’s balance sheet, allowing it to expand its workforce, upgrade its technology, and, importantly, take more risk in the neediest communities. “You can take on more deposits, and you can get more money out the door,” Ashton says. 

Black bank beneficiaries are already evaluating where their money can make the greatest impact. Via its bank partners, LISC is looking at backing a tennis center in a low-income area of Detroit that needs to refinance costly debt at a lower rate. It’s also considering “bridge financing” for Black-led contractors working on construction projects at New York’s JFK airport; such financing is crucial to contractors because they don’t get paid until the work is done. “It’s the difference between getting a project across the finish line and not,” says Maurice Jones, LISC’s CEO.

Fueled by new deposits, some individual Black-owned banks will soon reach a milestone that has long eluded them: $1 billion in deposits. A merger announced in August between Broadway Federal in Los Angeles and City First Bank of Washington, D.C., would make the combined Black-led bank the first to cross that threshold. “That’s exactly the kind of audacious metric that we want to see moved,” says Jones. “If we can sustain it, we can make some serious, serious progress.”

McDonald, of Liberty, says his bank is preparing infrastructure to handle the inflows that would put it over that hump. He makes quick work of the back-of-envelope math regarding how that would affect his customers. With Liberty’s average mortgage size a little over $100,000, every $50 million in incremental equity is enough to mint 500 new homeowners, with additional tax revenue flowing into those communities. “It has a multiplier that is better than any government program, when you think about it,” he says. 

As for OneUnited, Kevin Cohee proclaims without a hint of uncertainty, “We will definitely be a billion-dollar bank.” The irony is that size can compromise trust between banks and Black communities. As Black banks have gained popularity, they’ve had to work harder to distinguish themselves from Wall Street and its whiffs of the white establishment. OneUnited learned that the hard way in February, when it released a debit card emblazoned with the likeness of Harriet Tubman. The bank immediately faced a backlash, with people accusing it of appropriating the Underground Railroad heroine’s legacy for gain. 

“There was a thought that this card was being introduced, like, by Wells Fargo or somebody,” says Teri. “Yeah, no, there’s no white man behind the curtain.” The injection of new money could help make sure it stays that way.

Big partners for a growing movement

Fortune 500 companies have stepped up this summer to infuse capital into Black-owned banks—often in inventive ways that expand their impact.

Netflix

In June, the video streaming company set a trend by diverting 2% of its deposits to Black banks. Of the $100 million in cash, $25 million will go to a newly created Black Economic Development Fund that Costco has since joined. The fund is expected to multiply further by its October launch as other companies sign on.

Bank of America

In September the banking giant made $50 million worth of equity investments in three Black-owned banks (taking a 5% stake in each): Liberty Bank and Trust (in New Orleans), First Independence Bank (Detroit), and Optus Bank (Columbia, S.C.). That was on top of $100 million in deposits it had already moved to minority-led banks.

PayPal

The payments firm has committed more than $500 million to Black communities and businesses. That may ultimately include shifting more than $300 million of its deposits to Black-led institutions. In August, it wired a $50 million installment to Optus, structuring it so the bank can invest some of the money to generate extra income.

Microsoft

A pioneer in this category, Microsoft moved deposits to Black-owned Liberty Bank back in 2005, to inject capital into New Orleans after Hurricane Katrina. Microsoft now plans to double the percentage of the volume of transactions—including buying and selling fixed-income securities—it does at Black-owned banks.

Alphabet

For its record-setting $5.75 billion sustainability bond offering in August, Google’s parent company chose half the underwriters from Black- and minority-owned institutions, and paid them a disproportionate cut of the fees. The $4 million bounty is believed to be the largest-ever haul for diversely owned firms in a corporate bond deal.

A version of this article appears in the October 2020 issue of Fortune.

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