Bankers need to walk the walk on equality

George Floyd’s tragic death ignited a powder keg of anger and frustration over systemic racism. In the wake of global protests the banking industry is asking: What should we do now?

Banks have a disproportionate responsibility to act. Financial discrimination and the resulting inequities are one of the most powerful contributors to the black community’s frustration.

Many banks have issued statements condemning racism, and promised to help small businesses that have suffered damages amid civil unrest. But what next?

While it is increasingly clear that these initial words of support must be a down payment on a more robust approach to addressing systemic racism, there is no blueprint for how to move forward.

However, there are some immediate action steps:

First, bankers should start by proactively supporting their black employees.

The coronavirus pandemic was already driving a dramatic increase in depression, anxiety and other mental health concerns, especially among the hardest-hit communities. Layer on the existential stress of watching and hearing about people being murdered simply for being black, and it’s likely heightening the distress black employees are feeling.

Bankers must acknowledge their pain, encourage them to engage in self-care, and offer them mental health resources.

Second, banks should own their role in redlining.

One of the most significant historical contributors to today’s racial wealth gap is lenders’ refusal to make mortgages in minority neighborhoods. The practice was outlawed in 1968, but banks still make far more mortgage loans in white neighborhoods than in neighborhoods of color.

For instance, in Chicago one recent report said that for every $1 banks loaned out for residential real estate in the city’s white neighborhoods, banks invested 12 cents in the city’s black neighborhoods, and 13 cents in Latino neighborhoods.

In the same way some colleges and universities have examined their involvement in slavery, bankers must dust off the archives and understand what role their institution played in redlining.

Acknowledge it with staff, community partners and the public. Then examine current mortgage lending practices. Identify what obstacles are keeping the institution from doing more lending in minority communities, and develop a plan to remove the obstacles.

Third, bankers must increase their lending to black-owned businesses.

Like mortgage lending, the dearth of small-business lending to minority owners is a longstanding problem. Only 3% of all SBA 7(a) loans went to black businesses for the week through May 29, according to the Small Business Administration.

Furthermore, a 2016 report from the U.S. Conference of Mayors showed that black business owners were denied bank loans at triple the rate of white owners.

Credit needs in minority communities are greater than ever. The SBA’s Paycheck Protection Program did not reach very far into minority communities. And many of those same business owners who are struggling from the pandemic’s stay-at-home orders are now facing looting damages from recent civil unrest.

Bankers should examine their current small-business lending practices, identify what obstacles are keeping the institution from doing more and create a plan to address the obstacles.

Fourth, banks should conduct a very honest and open pay equity review. Do the work to determine if there's a pay gap between racial and ethnic groups. Be transparent about the results, like Citi has in looking at its “raw” pay-gap numbers. And then make the needed adjustments to close the gap. Repeat annually.

Lastly, banks must diversify their executive ranks. Among the largest U.S. bank holding companies, only one is led by a black CEO, Roger Ferguson of TIAA. A number of the largest and most powerful consumer banks still do not have black people on their senior leadership teams, even after facing public calls for change following specific discriminatory practices.

A 2018 study by Bank Director, which focused primarily on banks with less than $5 billion of assets, found that 77% of bank boards had no ethnically diverse directors.

Representation matters. Diverse teams are more likely to develop strategies and approaches that will resonate with diverse customer segments. And diverse leadership sends the signal to diverse communities that you acknowledge them and are there for them.

The inequities of today were built on 400 years of systemic racism, and the banking industry has played an outsized role. Dismantling discriminatory systems and reducing inequality will be difficult and takes time.

But that can no longer be an excuse for not starting the work in earnest, and keeping at it. The problems aren’t new. The data points exist.

At this moment in history, talk is cheap. Focus less on saying the right thing. Just do the difficult work that needs to be done.