Weighing Big Tech’s Promise to Black America

Black banks have been held up as the secret to racial uplift since the end of the Civil War. In 1865 the Freedman’s Savings Bank was chartered by Congress for the benefit of newly emancipated slaves and was described by Frederick Douglass as his people’s “road to a share of the wealth and well-being of the world.” Decades later, in the most successful Black American enclaves of the early 20th century, institutions like the St. Luke Penny Savings Bank in Richmond, Virginia, and the Mechanics and Farmers Bank in Durham, North Carolina, helped Black people purchase homes and finance new businesses. For generations, Black leaders across the ideological spectrum, from Booker T. Washington and W. E. B. Du Bois to Martin Luther King Jr. and Malcolm X, have encouraged their people to seize their own financial destiny by controlling banks. And in any case, white-owned banks rarely lent to Black people before the Civil Rights era. “There are many reasons that people have been drawn to Black-owned banks,” says Mehrsa Baradaran, a law professor at UC Irvine and the author of The Color of Money: Black Banks and the Racial Wealth Gap. “Solidarity and necessity, most especially.”

But these institutions have long teetered, along with their clientele, on a knife’s edge of financial precarity. For a hundred years after slavery, Black people were systematically excluded from well-paying blue-collar and white-collar jobs, and today they still face higher unemployment rates than white people. The practice of red-lining, a state-sanctioned policy of labeling Black neighborhoods as financially hazardous for investment, denied many people access to homeownership, which is historically the easiest route to intergenerational wealth and financial stability. Redlining was outlawed in 1968, but today mortgage-approval algorithms continue to favor white home buyers over their Black counter-parts. Business loans and venture capital, too, still accrue to white entrepreneurs far more than to entrepreneurs of color. These factors have contributed to a huge and persistent racial wealth gap: While the median white family’s net worth is $171,000, the median Black family’s is $17,000. And that gap makes it nearly impossible for Black-owned financial institutions to generate much wealth without more integration into the broader financial system.

In order to function efficiently, banks and credit unions need collective buy-in both from people who make deposits and people who take out loans. The money you keep in your savings account may get loaned out to an entrepreneur; the business they build may, in turn, provide jobs in your community, giving workers more money to spend and save. And some of those earnings may wend their way back to the original bank in the form of more deposits. This dynamic is called the money multiplier effect, and it undergirds America’s economic prosperity. But that virtuous cycle falls apart in communities that lack capital. “Banks aren’t magic,” Baradaran says. “If there isn’t wealth in the Black community, they can’t create it out of nothing.”