America’s biggest banks insist they can and will do more to combat the nation’s racial inequality crisis.
The trade group behind JPMorgan Chase, Wells Fargo, Bank of America and dozens of other big banks is detailing 30 best practices lenders can take to ease inequality in Black communities.
The report from the Bank Policy Institute, shared exclusively with CNN Business, marks the first time the industry is laying out concrete ways to tackle these deep-seated challenges laid bare by both the Covid-19 pandemic and the murder of George Floyd.
Recommendations include publishing diversity and inclusion data, hiring more diverse wealth management personnel and exploring a “massive” industry-wide philanthropic investment in a particular sector or fund.
The report comes ahead of a hearing on Tuesday by a House of Representatives subcommittee examining the financial industry’s commitments to economic and racial justice. Lawmakers plan to debate legislation that would require public companies to carry out a racial audit every two years.
“When you look at history, you see centuries of financial exclusion for Black Americans. It goes back to the founding of our country,” Fabrice Emmanuel Coles, BPI’s vice president of government affairs, told CNN Business.
Coles, who is scheduled to testify at Tuesday’s hearing, said some banks have already been conducting these best practices, while others have not.
He acknowledged it will take time and considerable effort to chip away at racial inequality.
“It’s going to take a village to drive sustainable change because of the residue of exclusion and discrimination,” said Coles, who previously served as executive director of the Congressional Black Caucus and an aide to Democrats in Congress.
BPI represents 40 of the largest banks with US operations, including Goldman Sachs, Citigroup and PNC.
Tying exec pay to diversity
Yet critics of big banks would argue that the industry hasn’t done enough to address inequality, including in its own backyard. A study published in March by the Committee for Better Banks called the industry out for a lack of diversity in its upper ranks and concluded that “racial bias runs deep” at banks.
The BPI report detailed multiple best practices aimed at improving diversity at banks.
For example, the report called on banks to establish a cross-functional taskforce to promote diversity and ensure diversity and inclusion leaders report directly to the CEO, or at least to other C-Suite executives.
Moreover, banks are being encouraged to track diversity, equity and inclusion data — and to publish the progress for review by the public. If numbers don’t improve, BPI suggested senior management can be held “accountable” by linking progress to executive pay.
Joining forces on philanthropy
The BPI report also urged banks to continue to make charitable efforts aimed at reducing inequality. Specifically, it said banks should make sure philanthropy works closely with business units and to remove barriers to quick deployment of grant funds during the pandemic.
And the report hinted at an industry-wide investment. “Joining forces would allow for large-scale investments to be a powerful indication that the banking industry is committed to addressing pervasive inequality,” the report said, adding that a possible model is the $300 million that National Basketball Association team owners have pledged to invest in a fund that addresses racial injustice.
Yet BPI stressed that philanthropy can’t be a substitute for refining business practices to better serve overlooked communities or emphasizing diversity.
“Firms should not be satisfied to give money to Black causes, as important as that giving can be,” the report said.
A $16 trillion problem
Wealth inequality is particularly glaring along racial lines. As of 2019, the median net worth of White households was $188,200, or nearly eight times that of Black families, according to the Federal Reserve.
BPI called for banks to diversify the ranks of private bankers, financial advisers and sales people and to target investments in funds run by firms with diverse leadership. The report also urged banks to spend money on marketing to reach new Black clients.
In addition to getting new diverse customers, BPI said banks need to do more to keep existing ones. The report noted that existing guidance from regulators often forces banks to close the accounts of customers with unpaid overdraft fees of 60 days or more and document this to a reporting agency.
“This unnecessary result can and should be avoided to ensure that banks are not driving customers away from formal banking relationships,” the report said, adding that banks should work with regulators to weigh options here.
BPI also suggested banks should expand small-dollar lending products with “affordable and transparent” features as a safer alternative to payday products.
In other words, there is a growth opportunity for banks in working to address the needs of underserved, often minority, communities.
That’s not to mention the fact that racial inequality is holding back America’s economy. Failures to address the wide gaps between Black and White communities has cost the US economy up to $16 trillion over the past 20 years, according to an analysis published by Citigroup last fall.
At Tuesday’s hearing, lawmakers on both sides of the aisle are likely to be skeptical of these efforts by banks to address inequality.
Democrats have suggested banks need to do much more, including by hiring more diverse leaders and ending overdraft fees and other practices viewed as predatory. Democrats on the House subcommittee holding Tuesday’s hearing noted that despite expressing solidarity with the Black Lives Matter movement last year, JPMorgan, Goldman Sachs, Bank of America, Wells Fargo and Citigroup all urged shareholders to reject racial-equity resolutions.
Republicans, on the other hand, have warned bankers not to politicize lending or weigh in on highly charged social issues such as voting rights.
“I am concerned about increasing pressure on banks to embrace ‘woke-ism’ and appease the far left’s attacks on capitalism,” Republican Senator Pat Toomey told big bank CEOs at a hearing late last month.
Industry executives insist they aren’t caving to political pressure.
“Banks are just making business decisions,” said BPI’s Coles. “There isn’t some kind of political-driven woke-ism at play.”