The congregation in the small Methodist church in Harlem listens attentively as the special Sunday speaker approaches the end of his sermon. He tells them that the church needs money, and that they can help if they come to the Freedom National Bank and deposit their money there. The bank will use the accounts as collateral. Against this collateral it will issue the church fathers the mortgage on the church which they have been refused because of an alleged shortage of mortgage funds.

Such a Sunday morning solicitation pointedly illustrates the ambiguity of the bank's role in the Harlem community. As Harlem's first Negrostaffed and directed bank, now only a year-and-a-half old, Freedom National Bank is a symbol of what Negroes can do to help themselves, according to the president of the bank, William F. Hudgins. Hudgins feels that going to the people by taking to the pulpit is a legitimate tactic in his crusade to bring full banking service to a community where discrimination in the money market is one of its many economic handicaps. He hopes not only to gain new accounts for the bank, but to modernize the churchgoers' primitive financial habits. Many have never seen the inside of a bank.

Using Race Sympathy

But to many Negroes, refusal of the church mortgage until the bank has picked up extra depositors is a clear case of exploitation. To the skeptics, the Freedom National Bank is simply an example of middle-class Negroes taking advantage of race sympathy for their own personal gain. To them, Hudgins' bank, like the other ten, white-run, banks in Harlem, is one more part of the power structure, one more reason why Harlem is an economic colony of New York City. They feel that Negro bankers who live outside Harlem--as do almost all of Freedom National's 50 employees--can drain money out of Harlem just as effectively as the white businessmen who own almost all of Harlem's stores. Black bankers do not help Harlemites, they maintain, they help themselves.

Hudgins agrees that white businessmen are responsible for draining money out of Harlem. But he has his own view of how Harlemites can reposess and increase the wealth of their community. Every dollar which goes into the pocket of a white Harlem businessman and is spent or deposited in a bank in the Bronx or "downtown" is a dollar which does not get invested in Harlem. If businessmen and individuals can be persuaded to deposit their money at Freedom National and other Harlem banks, the banks will be able to make loans to Negroes to purchase and improve homes and businesses. Soliciting accounts is therefore justified because more accounts make more loans possible for the improvement of Harlem.

But in addition, Hudgins maintains that Negroes are contributing more to Harlem by dealing with the Freedom National Bank because it is doing more for Harlem than the other, white-owned, banks. Hudgins claims that the bank makes long-term loans to Negroes which they cannot obtain from white banks. In practice, the degree and nature of such discrimination is difficult to measure, since many Negroes who would like to borrow have low incomes--median Negro income in New York City is a little more than half that of median white income--and cannot hope to measure up to the established credit standards for long-term, low-cost loans. Hudgins firmly believes that discrimination on all loaning for large amounts or long periods is widespread, although it is true that it has decreased somewhat since pre-World War II days, when "The Mortgage Conference," a group of white banks, refused to grant mortgages to Negroes at all.

Because of this tradition of discrimination, Hudgins says, a Negro who hesitates to approach a white bank feels that his financial problems will be heard with a more sympathetic ear at Freedom National Bank. He cites the bank's attractions: its staff is 98 per cent Negro; the bank is located in the heart of Harlem, on 125th St. between 7th and 8th Avenues; its trademark is made up of an F for Freedom and an equals sign. And 30 per cent of the bank's $5 million in loans goes for first mortgages, a particularly difficult kind of loan for a Negro to get.

Hudgins also talks about the loans which Freedom National makes to businesses to buy stock. Because Negro businesses have not traditionally been able to get loans to buy inventory in large volume at low prices, he says, they have not been able to compete with the more affluent white businessmen in Harlem.

But for all his talk about race goals, Hudgins is a businessman first and a Negro second, and there is little evidence to show that Freedom National has had any substantial effect on Negro ownership in Harlem. The bank has made one large loan, for the purchase of a large furniture store in Harlem by a Negro businessman. This purchase is significant because most Negro businesses are small, service-oriented firms such as beauty parlors and liquor stores. But reliable sources indicate that Freedom National's loan policy and loan rates are not significantly different from those of any other bank in Harlem. Half of all loans are made for the purchase of cars, television sets and other consumers' durables--loans which are also obtainable at other banks--and not for permanent improvements in the buildings and stores of Harlem. And fully 70 per cent of the mortgage loans go to homeowners and business outside of Harlem. Of the mortgages made within the Harlem community, half are made on churches, not on homes or stores. Since traditionally churches are safe long-term credit risks, it is questionable whether the bank really needs the accounts which Hudgins solicits in his sermons to back the church mortgages. It appears that he is simply trying to pick up accounts by using the churches as a medium of free advertising for the bank.

Only in one respect does the bank's loan policy differ significantly from that of white banks. It is the largest participant in Small Business Administration loans in the city. Since the Federal Government insures these loans up to 90 per cent of their value, the bank takes on a smaller part of the loan risk. It can extend credit to businesses too small or new to have amassed enough profit to finance desired improvements. But even in this category sources from inside the bank indicate that 40 per cent are going to firms located outside of Harlem. The bank will not say what percentage of these loans have gone to Negro businesses. Thus even in its distribution of Small Business Administration loans, the bank cannot pretend entirely to be serving race ends. It is a long way from starting many much needed programs such as a special educational loan fund which Hudgins has talked about.

Clearly there is a substantial gap between Hudgins's preaching and the actual contribution which Freedom National has made to Harlem. But it is too easy simply to cry hypocrisy and exploitation of race sympathy. The gap may be the result of sound business decisions. Even if Hudgins and the other Negro directors genuinely desire to help Harlem, their good intentions cannot overcome the real financial difficulties which Negro-oriented banks everywhere face. Because of the low levels of income of most Harlem residents, individual family checking or saving accounts are very small, usually less than $1000. A small account contributes little to the bank's total assets, but will be expensive because small accounts always show more withdrawals and checks to process per hundred dollars than large business accounts. The predominance of such low-level, high-cost accounts has caused serious financial difficulties for the United Community National Bank, an integrated bank in Washington, D.C. Only if the number of small accounts is high is it feasible to expect to make money on them in the long run.

Alternative sources of funds are hard to come by in Harlem. Because Negro businesses are small and few, and white businessmen are not interested in switching their accounts to Freedom National, large business deposits which would cost less per hundred dollars to maintain have not made up for the large number of small individual accounts. Therefore, the bank must rely on building up a large enough volume of small accounts to make handling them profitable. In the bank's present situation, where the costs of funds available to loan out are high, it is a normal banking reaction to minimize loan risk by spreading loans to other areas than Harlem, and to other borrowers than Negroes.

Until the bank finds a more solid financial backing than it now has, it will be preoccupied with the simple question of survival. Although in the long run, such helpful steps as liberalization of mortgage credit or the establishment of an educational loan fund might be possible, Freedom National is behaving now very much like any other bank. Rather than admit this fact, Hudgins continues to talk race goals--partly because he really believes in them and partly because he thinks favorable publicity will attract the volume of small accounts the bank needs to survive.

Unfortunately, it may already be too late for the bank to build up a solid financial basis inside of Harlem, because of its original non-Harlem supporters. The rapid growth of the bank's deposits in the first ten months after the bank's opening in December 1964--at the rate of almost a million dollars a month-- was largely due to a series of one-shot, goodwill deposits from a variety of large white businesses such as Bowery Savings Bank and the Chemical Bank of New York. As long as Freedom National wants to feel sure that these funds will not be withdrawn from its vaults, it cannot afford to take open stands on social issues. In Haryou's language, what appeals to the black masses alienates the white power structure. Hudgins' church sermons on thrift, followed by solicitations, cannot spark the same kind of enthusiasm which could be generated by playing up the fact that Freedom National has no investments in South Africa, unlike most of the larger New York banks. Fear of their white depositor's antagonistic reaction to publicity of this fact has kept the bank's directors silent.

Just as limiting is the fact that three whites--Jack Blumstein, owner of Harlem's largest department store; Frank Schiffer, a owner of theatres all over Harlem; and Irving Altman, a retired banker--are on the board of directors. These men may not explicitly oppose the advancement of Harlem, but they are bound to support conservative stands on social issues or to advocate neutrality. As middle-class whites, they are inclined to conservatism where they are involved in final decision-making.

Now that deposits are no longer growing at the former rate, the bank is rapidly approaching the moment of truth. In order to survive, the bank must make a public choice. It can make an all-out effort to enlist the support of the community over the protest of white depositors and board members, thus attracting a sufficiently large number of small accounts from the "man in the street" to survive. But the directors have made little effort to gain the sympathy of the masses. "When we have to read about what Freedom National is doing in the papers or hear about it over the radio," says one Negro social worker, "they can't be doing too much in Harlem."

The alternative is to seek a steady source of funds outside of Harlem by continuing to follow a moderate line which will not alienate moderate or conservative businessmen. If the directors believe that many more charter depositors can be attracted by this strategy, then this may be one feasible way out of the shortage of funds.

At the moment, Hudgins seems to be trying to avoid the choice by appealing both to some Harlemites through the churches, and to some non-Harlem business by remaining a moderate. If this strategy wins him only half-hearted support from both groups, the bank will never have a chance to show what a soundly financed Negro bank might do for Negro areas such as Harlem. The perils of fence-sitting in banking are considerably greater than almost any other kind of fence-sitting, for there is no comeback from failure