How diversified lending can buoy Black-owned banks

According to a June 30 filing, three Black-owned US banks—Industrial Bank, First Independence Bank, and Mechanics and Farmers Bank—joined eighteen other banks, including Citigroup, in a $1.23B syndicated corporate loan. The loan was provided to Science Applications International Corp. (SAIC), which offers IT services to the US government.

Why should we care?
The timing of the loan is crucial—especially as the US may be approaching a recession. Corporate loans like the one given to SAIC are a relatively safe source of income for banks, because they’re among the first liabilities that corporations settle in their debt stack. Minority-owned banks are typically excluded from these kinds of loans; they primarily serve low- and moderate-income customers, who tend to be hardest hit during downturns. Citigroup included the three banks in the loan as part of a larger initiative to expand equitable banking in the US. Providing these banks access to safer loans can help them weather economic volatility more successfully. “We don’t have the luxury that some large banks have where they have various lines of business where they generate income,” said Kenneth Kelly, CEO of First Independence Bank. “We make most of our money off of interest income on loans, so that was one of the big motivators for us.” Granted, the three banks represented less than 1% of the total value of the loan; a welcome gesture, the loan also demonstrates how large and persistent the racial gaps are in the banking space and beyond.