Freedom: Not Just Another Bank

By Thomas McCarroll/New York

Rumors of the bank's imminent failure circulated throughout Harlem like a bad dollar bill all weekend. Anxious depositors began lining up outside on 125th Street in Manhattan as early as 5 a.m. last Tuesday, following the Veteran's Day holiday. By 9 a.m. the crowd was chanting, "Save the bank! Save the bank!" But Freedom National Bank was not to be saved. Instead, it became the 155th bank to be closed by the government so far this year. Said a saddened depositor, Joan Carpenter: "It's a shame. This is the only black bank in Harlem, and it shouldn't be allowed to close. It's not just another bank."

Just so. Until last week, Freedom was the nation's fourth largest black- owned banking company, with assets of $121 million. Founded in 1964 by a group headed by the late baseball great Jackie Robinson, Freedom was formed with a special mission: to serve the churches, businesses and homeowners in the African-American community who were typically denied credit by mainstream institutions. Freedom helped finance the renovation of the Apollo Theater, for instance. But like many banks in the '80s, Freedom sought to cash in on expanded powers granted under deregulation by moving aggressively into new lending areas, including risky commercial real-estate ventures. Analysts say the bank strayed too far from its home base. As a result, the number of loan defaults at Freedom jumped 20% in the past year. The bank had lost $7 million since 1988.

Freedom's failure underscores not only the weakness in the banking system but also the special fragility of financial institutions controlled by minorities. Freedom was the weakest of the nation's 37 black-owned banks and the first to fail this year. While minority-owned banks face the same problems as traditional lenders, their troubles are compounded as they are overly dependent on depositors whose small accounts are costly to maintain and borrowers who run a greater risk of defaulting because of business failure or unemployment. This leaves these banks with little or no room for miscalculation.

Community leaders maintain that there is a special need for black banks. Rejections for black business and mortgage loans run so high in New York that the city's Human Rights Commission recently launched an investigation into bank lending practices. There is also growing concern about the number of branches being closed by big banks in minority neighborhoods. That's why black leaders went all out to rescue Freedom, as they had once before. In 1975, 11 area banks and foundations supplied $4 million in emergency funds to avert a collapse.

In a last-ditch effort to save Freedom, political and business leaders tried to raise the $6 million needed to keep the bank solvent. But federal regulators closed Freedom after the group failed to meet a Nov. 13 deadline. Harlem Congressman Charles Rangel, in whose district the bank was situated, charged that the government moved too hastily. "It was mean spirited," he says. "We needed more time."

Efforts are already under way to start another black bank in Harlem. The names being considered include Freedom II and Freedom Now.