How banking changed after the killing of George Floyd

By Kevin Wack, Polo Rocha, Laura Alix, Allissa Kline, Jon Prior

May 25, 2021 2:43 PM

One year ago today, Minneapolis Police officer Derek Chauvin was captured on video with his knee on the neck of George Floyd for eight minutes and 46 seconds, as Floyd said that he could not breathe and then went motionless. The explosive video of a white officer killing an unarmed Black man sparked a wave of nationwide protests. Chauvin was convicted last month on charges of second-degree unintentional murder, third-degree murder and second-degree manslaughter.

As issues of racial inequity have gained more attention, the U.S. banking sector has felt various effects. Floyd’s killing has led banks to increase their focus on racial diversity in their workforces. At the policy level, it has sparked greater interest in undoing the legacy of redlining, and added momentum to an ultimately successful push to provide debt relief to Black farmers. It has also led to new investments in Black banks that have long been struggling to survive.

What follows is a look at some of the ways that Floyd’s killing has impacted banking and financial services policymaking.

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Debt relief for Black farmers

In March, President Biden signed into law a plan to forgive U.S. Department of Agriculture-backed loans to farmers of color.

The landmark legislation represents an acknowledgment of the lending discrimination that contributed to the decline in Black farmers in America from more than 925,000 in 1920 to about 45,000 in 2017, according to the latest agriculture census data.

On Friday, the USDA provided the first guidance on how it plans to implement debt forgiveness. The agency will initially make payments on loans that were made directly by its offices.

But the USDA has yet to say whether it will bend to the banking industry’s plea for more payments on agency-backed loans originated by private lenders. Small agricultural banks with heavy concentrations in these loans could stand to lose out on years of interest payments if they are paid off early.

John Boyd, founder and president of the National Black Farmers Association, has been pushing a debt forgiveness program for Black farmers for about 30 years. Now that it’s finally here — due in large part to the protests over economic inequality over the past year — Boyd said that the recent debate involving banks has stalled momentum around the issue of unfair lending practices in U.S. farm country.

Boyd said that he has called some banks directly, though he didn’t say which ones, to express his frustration with how their pushback against the debt forgiveness program has contrasted with their public comments seeking to reconcile banks’ role in furthering the economic divide.

“We need to hear about how we’re going to get more access to credit,” Boyd said. “This is something some of the top 10 banks can do.”

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Strengthened anti-discrimination measures

The issue of discrimination in the residential mortgage market — both past and present — has also become more prominent in the last year. Shortly after President Biden took office, he signed an executive order ordering the U.S. Department of Housing and Urban Development to redress historical racism in housing policies, and specifically calling out lending discrimination. Biden cited Floyd in the remarks that he made when he signed the executive order.

“Those 8 minutes and 46 seconds that took George Floyd’s life opened the eyes of millions of Americans and millions of people around — all over the world,” Biden said. “It was the knee on the neck of justice, and it wouldn’t be forgotten. It stirred the conscience of tens of millions of Americans and, in my view, it marked a turning point in this country’s attitude toward racial justice.”

At the state level, the racial equity push that was ignited by Floyd’s killing led to the passage of the Illinois Community Reinvestment Act. The new law, which was opposed by the banking industry, will allow Illinois regulators to assess the performance of state-chartered banks, state-chartered credit unions and nonbank mortgage lenders in meeting the needs of economically disadvantaged communities.

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Growing support for public banking

The public banking movement has also gotten a jolt of momentum from broader discussions about racial inequity.

New efforts from California to Massachusetts are underway to direct public funds and tax revenues into low-cost credit and banking services for minority and low-income people, businesses and communities. Though the movement was gaining strength in parts of the country before 2020, supporters say that ongoing conversations about systemic inequality have given it new fuel.

“It has created a willingness to explore potential new institutional solutions,” said David Jette, a co-founder of Public Bank L.A., an advocacy group currently pushing for a municipal bank in Los Angeles. “I think public banks are getting a much fairer hearing.”

California lawmakers are now considering a bill that would create a statewide consumer bank that would offer no-fee debit cards, direct deposit, and electronic bill pay. That effort is largely motivated by the high cost of banking for many low-income and minority families.

Meanwhile, Black business leaders in Massachusetts are supporting a bill that would establish a state-owned bank there. Many Black business owners struggled to get Paycheck Protection Program loans early in the pandemic, and the Black Economic Council of Massachusetts wants to make sure they don’t get left behind in the recovery.

The idea that “reparatory credit” can play a role in easing racial inequity is no longer the “third rail” it once was, Jette said.

“This is becoming a language that people speak, so when we talk about the possibility of a public bank, it’s no longer just about lower cost of credit,” he said. “It’s actually a tool to reverse problems built into our economy.”

Heightened focus on workforce diversity

Some banks were already making diversity within their ranks a priority. But in the midst of the nationwide protests last summer, several others stepped up their efforts to attract, retain and promote people of color.

For many banks, that meant hiring or promoting chief diversity officers. That’s what happened at U.S. Bancorp in Minneapolis, PNC Financial Services Group in Pittsburgh and SVB Financial Group in Santa Clara, California.

Others pledged to recruit from historically Black colleges and universities, hire more workers from disadvantaged communities and require search firms to include people of color on their lists of potential job candidates. Meanwhile, the CEOs at Wells Fargo and HSBC promised to double the number of Black executives by 2025, while some banks, including Wells, began tying executive pay to certain diversity and inclusion metrics.

But it remains unclear whether the changes in hiring, retention and promotion policies will make a tangible difference. As Kenneth Kelly, immediate past chairman of the National Bankers Association and current chairman and CEO of First Independence Bank in Detroit, put it last summer: “The naming of a position does not a culture change make.”

At Fed, a spotlight on racial disparities

At his first news conference after Floyd’s killing, Federal Reserve Chairman Jerome Powell said that it “again put a spotlight on the pain of racial injustice in this country.”

Other Fed officials have also been vocal about racism and economic disparities, with Atlanta Fed President Raphael Bostic writing in a June blog post that “systemic racism is a yoke that drags on the American economy.”

Bostic, who was the first Black leader of a regional Fed bank, has since worked with the Minneapolis Fed and Boston Fed on a Racism and the Economy event series. The events so far have focused on employment, education, housing and diversity within the economics profession. The next event, on June 2, will focus on entrepreneurship.

The Fed’s Board of Governors has devoted a portion of its website that outlines the central bank’s work on economic disparities, including its supervisory functions and its work on overhauling the Community Reinvestment Act.

Fed Governor Lael Brainard, who is the Fed’s point person on the CRA, said in September the law “remains as important as ever as the nation confronts challenges associated with racial equity and the COVID-19 pandemic.” The Fed and other bank regulators are expected to resume work on an interagency CRA proposal in the coming months.

The Fed also made a major change last year to the framework it will follow when it eventually raises interest rates, specifying that its goal of maximum employment is “broad-based and inclusive.” The Fed has indicated it will keep rates at near zero until inflation has reached 2% and is on track to moderately exceed it, and until the job market reaches maximum employment.

More investment in Black-owned banks

Black-owned banks have gotten a lift over the past year, helped by big players’ investments in minority deposit institutions.

Just this week, Wells Fargo announced that it has completed a pledge to make $50 million in equity investments in 13 Black-owned banks. Wells is also committing to helping those institutions with technological and product development strategies, and opening up its ATM network for customers to use for free. Bank of America and JPMorgan Chase have also invested in Black-owned banks.

In June, Netflix announced a $100 million effort to help Black-owned lenders, a quarter of which went to a New York community development financial institution that assists Black-owned banks and businesses.

Black-owned banks are also increasingly getting involved in larger corporate deals. Citigroup gave Houston-based Unity National Bank a chance to contribute $1.65 million toward a $13.95 million affordable housing loan.

A group of Black-owned banks also partnered on a $35 million construction loan to the Atlanta Hawks professional basketball team, the first time a sports team got financing exclusively from Black-owned banks.

“What we earn from this loan strengthens our collective ability to provide even more loans and financial services to Black small businesses and consumers,” said Robert James II, director of strategic initiatives at Savannah, Ga.-based Carver State Bank.