THE DILEMMA OF BLACK BANKING - LENDING RISKS VS COMMUNITY-SERVICE

Black-owned banks face a serious dilemma: founded primarily to help fill the gap between the demand for and supply of credit to the black community, the more they try to respond positively, the greater is the probability that they will fail. The paradox arises from the exceptional risks these lenders must assume when they extend credit to individuals who suffer from above-average instability of employment and income, or to black-owned businesses, which have high rates of bankruptcy. The failure of Freedom National Bank in November 1990 illustrates the adverse consequences of assuming excessive risks.