This study reviews selected issues related to the role that black-owned banks can play in contributing to the economic development of low-income, minority communities. Given their paucity in numbers, their lack of size, and their financial weaknesses, they have yet to demonstrate that they can serve as an important engine of growth for their communities. Also, for over 150 years, it has been argued that black-owned banks are needed because of discrimination by financial institutions against black customers. Various studies give conflicting results, but so far there is no conclusive evidence that lending discrimination exists. To encourage bank lending to low-income communities, the Community Reinvestment Act was enacted. Some black-owned banks however, have complained that the Act encourages unfair competition from other banks for the same loan customers. Hence, the case for an essential role for black-owned banks has yet to be made decisively. Evidence, however, suggests that their profitability and efficiency improves with time. Hence, in the future, with greater experience, black-owned banks may play a more important role in their communities.
Black-owned banks, lending discrimination, community development, Community Reinvestment Act
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