Discussions about Black-owned banks frequently focus on individual action. Open an account. Move deposits. Demonstrate support.
Less attention is given to the structural factor that determines whether these institutions grow or stall: balance sheet size.
In banking, asset size determines how much a bank can lend, how much risk it can absorb, and how competitively it can price capital.
Asset Size and Lending Capacity
Many minority depository institutions operate with asset bases well below the multi-billion-dollar thresholds common among regional and national banks.
Lending capacity is directly tied to that asset base because it reflects both available deposits and regulatory capital.
Banks are required to maintain regulatory capital ratios overseen by the Federal Reserve and the Office of the Comptroller of the Currency. As assets grow, capital must grow proportionally. When equity capital remains constrained, lending growth slows.
The growth sequence is structural:
• Smaller asset base
• Tighter lending limits
• Reduced earnings expansion
• Slower capital accumulation
Without significant deposit growth or equity investment, asset ceilings remain in place.
Retail Deposits and Scale
Public campaigns encouraging individuals to move personal checking and savings accounts are symbolically important. Retail deposits provide liquidity and community alignment.
Commercial deposits determine scale.
Treasury management accounts, nonprofit operating accounts, municipal funds, and business payroll accounts introduce larger, more stable balances. These deposits strengthen liquidity ratios and expand a bank’s ability to extend larger credit facilities.
For institutions such as Liberty Bank and Trust Company, Harbor Bank of Maryland, and regional lenders like United Bank, sustained commercial deposit growth expands underwriting capacity.
The Loan-to-Deposit Balance
A bank’s loan-to-deposit ratio reflects how much of its deposits are deployed into loans. Higher ratios indicate aggressive lending. Lower ratios reflect undeployed liquidity.
Smaller banks must manage this balance carefully. Insufficient deposits restrict lending. Elevated lending relative to deposits increases funding pressure and risk exposure.
Deposit growth is a structural growth lever.
Cost Structures and Margin Pressure
Smaller banks face the same regulatory compliance obligations as much larger institutions. Technology infrastructure, cybersecurity investment, audit requirements, and reporting obligations do not scale proportionally with asset size.
Net interest margins compress when funding costs rise or when competitive pressure limits pricing flexibility. Credit risk assessments in undercapitalized communities can further constrain margins.
Scale provides resilience. Fixed costs consume a larger share of earnings when scale is limited.
Why the Deposit Gap Matters
Black economic participation depends on capital availability. When minority banks cannot expand balance sheets, the implications extend beyond the institutions themselves.
Limited lending capacity affects:
- Commercial real estate development
- Small business expansion
- Construction financing pipelines
- Equipment and working capital access
Economic visibility requires financial infrastructure capable of supporting growth. Deposits are the raw material of that infrastructure.
Institutional Participation as a Growth Catalyst
Asset expansion accelerates when institutions participate meaningfully.
- Institutional deposit commitments
- Public sector banking relationships
- Corporate treasury partnerships
- Equity investment into minority depository institutions
Stronger balance sheets increase lending capacity. Expanded lending capacity increases capital circulation within local economies.
The deposit gap defines the pace at which Black-owned banks can support entrepreneurship, real estate development, and long-term wealth creation.
