Looking Back | Looking Back Archive

Black-owned banks provided seed money for many businesses

by Paul Levengood
for Virginia Business
April 2006

No dramatic event marked the birth of Jim Crow segregation in Virginia. Instead a web of law and practice gradually developed after Reconstruction that excluded African-Americans from politics, circumscribed where they could live, and limited their options for employment.

As blacks increasingly found themselves barred from patronizing the same businesses as whites, they created a separate, parallel world of enterprises that catered to their needs. In the late 19th and early 20th centuries in cities and towns, African-American business districts appeared. These included Richmond’s Jackson Ward, Charlottesville’s Vinegar Hill, Henry Street in Roanoke and Fayette Street in Martinsville. The businesses in these neighborhoods ranged from those that provided retail goods (grocery stores and dry-goods merchants), entertainment (theaters, newspapers and restaurants) and services (beauty and barber shops, funeral homes, and insurance companies).

Black-owned banks came to be an especially important part of the segregated economy. Richmond provides an illuminating example. In the early 20th century, the city could boast of at least six African-American banks. Three were outgrowths of black benevolent societies (True Reformers Bank, Mechanics Savings Bank and St. Luke Penny Savings Bank), and three had no such connection (Commercial Bank and Trust, Second Street Savings Bank and the Nickel Savings Bank). Two of Richmond’s most prominent African-American citizens, John Mitchell Jr., and Maggie Lena Walker, founded banks in this era — the latter becoming the first woman in the country to charter a bank.

Banks proved to be important economic stimulators. White banks often refused to lend money, or else charged exorbitant rates, to black businessmen and prospective homeowners. Therefore the seed money for many African-American enterprises was provided by black banks. The number of black-owned businesses in Richmond grew from 453 in 1907 to 797 in 1920. Similarly, banks helped fuel growth in home ownership in Richmond’s African-American community. Between 1910 and 1930, the number of blacks in the city who owned their homes rose by 22.5 percent.

In one of history’s ironies, the injustices of Jim Crow exclusion created a climate that encouraged a flowering of black entrepreneurship and businesses. Shut out of white stores and theaters and ignored by white bankers, African-Americans showed a remarkable ability to marshal the limited capital available to them and establish a parallel economy. The overturning of legalized segregation in the 1950s and 1960s brought with it some unintended consequences. Hard pressed to compete with better-financed white stores and service providers, many black enterprises closed their doors. Of the six black banks in Richmond in 1925, only one exists today: St. Luke Penny Savings Bank, known now as Consolidated Bank & Trust. The black business districts that these banks once anchored and supported often fell victim to urban decay.

Although the end of Jim Crow has resulted in incalculable benefits, it also spelled the end of a business community that, along with churches and benevolent societies, helped bring African-Americans through a bleak period.

The Virginia Historical Society has established the Reynolds Center for Business History to ensure that the stories of Virginia business, commerce, and enterprise are preserved. To learn more, please visit www.vahistorical.org.

Paul Levengood is managing editor of the Virginia Magazine of History and Biography at the Virginia Historical Society in Richmond. He also serves as the program coordinator of the Reynolds Business History Center, opening this summer as part of the VHS 175th anniversary celebrations.