Opinion: Investing in illicit banks is essential to eliminating racial variations


Ryan Williams, Co-Founder and CEO of RealCadre LLC (Cadre), listens during the Skybridge Alternatives (SALT) conference on May 9, 2019 in Las Vegas, Nevada.

Joe Buglewicz | Bloomberg | Getty Images

At the end of the Civil War and after the abolition of slavery, African Americans made up 14% of the American population, but owned only 0.5% of the world's wealth. Today the numbers are disturbingly similar: the percentage of the black population is roughly the same, but black Americans own only 2.6% of the wealth, according to the Brookings Institute.

Over the past year, awareness has been raised of the increasingly pressing need for greater economic justice. And now the time has come to take concrete steps that move us from awareness to action and from discussion to decision.

The banking system is the financial lifeblood of every community. It ultimately serves as a circulatory system for capitalism. When a community's banking system is down, the community suffers too.

Nowhere is this more evident than the lack of black-owned banks in black communities in the United States, which leads to greater economic inequality in many of those communities. Black-owned, community-focused banks provide much-needed capital and access to financial services to countless people who have been overlooked by major national banks.

I know the positive effects they have firsthand: It was actually a black-owned bank that, as a young real estate investor, saw me as an opportunity years ago.

A bench stepped forward

While building a commercial real estate investment portfolio in Atlanta in 2012, I tried to get a loan on a 600-unit multi-family portfolio in the Atlanta metropolitan area. While I had a strong group of investors, I was also a black guy in my 20s – an atypical profile for a borrower on a significant commercial real estate portfolio.

I've spoken to more than 10 banks and got turned down by all but one despite having a strong business plan, strong investors behind our partnership, and a strong financial background.

The only bank willing to lend me a loan was Citizens Trust Bank – an institution founded in 1921 by five black business people to promote greater economic prosperity for more individuals.

The bank is now a federally certified community development financial institution (CDFI) and the third largest black-owned financial institution in the United States. It has been a major engine of economic growth in communities across the country and has stimulated significant investments in color communities across the South East.

When my loan was approved, the then chairman of the Citizens Trust called me personally to tell me that he believed in me and knew that everyone needed support to reach their full potential.

To him, my loan was more than a financial transaction – it was an investment in my future and in the wider community. With the assistance of this bank, I completed the first of several transactions in the region over the years.

That experience led me to found Cadre in 2014, a company that now owns more than $ 3 billion worth of real estate nationwide.

The vote of confidence from the chairman of a black-owned bank not only positioned me for future success, but also helped refocus Cadre's mission to level the playing field for real estate investments so that more people have financial security.

Racial justice, economic justice

For the past few months, the conversation about racial justice in America has focused on how we turn our collective outrage over incidents of injustice into sustained systemic change.

There is no question that racial and economic justice are inextricably linked. But when it comes to addressing economic inequality in the US, there is one big problem: the positive experience I had with my first big loan is the rare exception.

Black communities have historically been excluded from the financial resources and capital that could enable us to build businesses, own real estate, invest locally, and truly own our financial future. Black focused lenders and banks, CDFIs and minority depository institutions (MDIs) are undercapitalized.

There are 4,700 banks in the United States with combined assets of $ 20.3 trillion. However, as of 2019, only 21 of these banks are black-owned or operated, and they have total assets of just $ 5 billion.

In addition, many large national banking institutions do not have branches in majority and minority neighborhoods, and banking experience can vary widely in different communities. Even when completing regular banking operations like cashing a check or withdrawing money, Black Bank customers can be exposed to racial discrimination and even allegations of fraud – so much so that a new social media hashtag was created for stories about #BankingWhileBlack.

And now, during the coronavirus pandemic, black-owned small businesses are much more likely to close than white-owned small businesses – an issue compounded by the fact that black-owned businesses are less likely than white-owned businesses to have traditional banking partners to guide them through the Paycheck Protection Program credit process.

The racial wealth gap and the wider movement for economic justice are often spoken of as if they were problems too big or complex to solve.

While not neglecting the scale of the problem, I firmly believe that "action is the antidote to despair" and that there are clear steps that can be taken immediately to promote greater economic prosperity for black communities.

Build relationships

First on that list are strong business relationships that generate profits for banks. Financing and credit offer banks the opportunity to generate income and thus multiply their capital investments in communities.

With this in mind, Cadre has committed to working with several MDIs to directly participate in funding future commercial real estate transactions on the Cadre platform over the next five years. We have deliberately included MDIs in financing and debting transactions across the country, and we are also committed to working with various operational partners based on the community.

And when an even wider range of businesses, investors, and organizations make similar commitments to work with illicit banks, there will be a greater multiplication of wealth and opportunities for communities that have long been denied access to capital.

In addition to partnering with MDIs in new business through financing transactions, companies can raise more capital in community banks and financial institutions by building cash deposits with those banks.

Deposits increase the total capital available for lending opportunities such as small business finance, family mortgages, and other loans for those in black communities. Cadre is committed to depositing up to 10% of our cash with leading MDIs, including Citizens Trust Bank and Liberty Bank – one of the largest and most successful black-run banks in the country, headquartered in my home state of Louisiana.

A multi-dimensional approach that includes both partnering with and supporting black-owned banks, in turn, results in capital flowing into underserved communities. More small businesses will flee, jobs will be created and lives will be changed.

All in all, there will be a greater chance of building generational wealth in black communities. I know because I've benefited from it.

It is time that we jointly devote ourselves to actions that offer people the opportunity to lift themselves out of poverty. Investing in communities – especially in the structural foundations that form and support them – is a necessary and important investment in a stronger and more vibrant future for all.

– Ryan Williams is the Co-Founder and CEO of Cadre.


Katherine Clark