The Dodd-Frank financial regulatory reform bill included a provision creating Offices of Minority and Women Inclusion in all 20 federal agencies that regulate our financial system.
People of color are now the majority in California and several other states and are on the way to being the majority nationwide. A regulatory system that doesn't adapt to this reality simply cannot do its job.
Each OMWI is responsible for taking steps to diversify its agency's work force, increase contracting opportunities for women- and minority-owned businesses and assess the diversity practices of its agency's regulated entities. Research from my organization shows the OMWIs will have plenty to do.
To get a baseline assessment of the agencies' diversity as the OMWIs begin work, the Greenlining Institute asked all OMWI directors for diversity data for their agencies' senior management and staff. We have reported on the diversity of bank boards of directors before, but this was our first look at the diversity of regulators.
Of the agencies that responded (the Securities and Exchange Commission being the exception), 15 provided Equal Employment Opportunity Commission data detailed enough to allow a thorough analysis and comparison. That data included all Federal Reserve banks, the Fed Board of Governors, the Federal Deposit Insurance Corp. and the National Credit Union Administration. The institute's report, "Financial Regulators Should Reflect the Racial Diversity of the Nation," does not paint a pretty picture. Although people of color made up just over one-third of America's work force in 2010, they are not represented at anywhere near that level at the decision-making levels of financial regulatory agencies.
At the executive management level, only the Federal Reserve Bank of Minneapolis included people of color at close to their level in the national work force: 28.6%. The next best, the Fed Board of Governors, was under 20%. Three Federal Reserve banks — Boston, Cleveland and St. Louis — had not one person of color in executive management. Those numbers are staggering when you consider that non-Hispanic whites make up just 47% of Boston's population and only 33.4% of Cleveland's. Four of the 15 agencies had zero African-Americans in executive management, seven had zero Latinos and nine had zero Asian-Americans. Native Americans and Native Hawaiians/Pacific Islanders were almost entirely missing.
The numbers get better as you go down the organizational flow chart. A handful of agencies, for example, had strong representation of people of color in middle management, and a slightly larger number had solid diversity among professional employees — accountants, computer programmers, etc. The heaviest representation of people of color was among administrative support and service workers.
The blunt truth is that the decision-making ranks of the agencies responsible for regulating our financial system are disproportionately, sometimes shockingly, white.
This matters. The Government Accountability Office said in 2005 that "diversity management makes good business sense that enhances productivity and innovation." Decision-makers who are diverse — not just in terms of race or ethnicity, but also diverse in experiences and backgrounds — can bring fresh perspectives that make their agencies less likely to have cultural or economic blind spots.
And there is good reason to think regulators have indeed had blind spots. We know that the foreclosure crisis did disproportionate damage in communities of color, often for reasons that made little economic sense. For example, data from the Federal Reserve Bank of San Francisco shows that, among borrowers with FICO scores of 720 or higher, African-Americans and Latinos were four times as likely as white borrowers to get high-cost, subprime mortgages. Clearly, something was happening in these communities that regulators didn’t see until it was too late.
Clearly, the OMWIs and the agencies they work within have work to do in order to represent all of America's diverse population and achieve the "productivity and innovation" the GAO discussed. But at least there is publicly available work force data with which to make the assessment — data that financial services firms are not presently required to report. As the OMWIs work on diversifying their agencies, they should also press the financial industry to report diversity information. When our financial sector and those who regulate it look more like America, we'll all be better off.
Divya Sundar is a community reinvestment fellow at the Greenlining Institute.