The Black-white wealth gap is a numerical representation of centuries of racial inequality in the United States. According to the Brookings Institute, the net worth of a typical white family is almost 10 times greater than that of a typical Black family in 2016—$171,000 compared to $17,150, respectively. The Brookings Institute describes wealth as the sum of resources available to a household at a point in time that includes accumulated wealth from past inheritances as well as fewer household expenses. By that definition, even Black and white families with the same income still have drastically different levels of wealth.
The effects of access to wealth is far-reaching: wealth allows people to buy homes in safe neighborhoods with good schools, gives younger generations a safety net to pursue various career opportunities, and affords people opportunities to be business owners and entrepreneurs. Unfortunately, even when Black Americans have managed to accumulate wealth, there have always been roadblocks and setbacks due to widespread and systemic racism, which ultimately harms their ability to build generational wealth.
Despite laws such as the Fair Housing Act and the Community Reinvestment Act that targeted discriminatory lending practices, minority applicants are still being denied loans at higher rates than their white counterparts. That’s why minority depository institutions, or MDIs, are so integral to closing the racial wealth gap.
Minority-owned depository institutions often serve low-and-middle-income (LMI) communities that do not necessarily fit the criteria for loans at other banks and better understand the issues that their communities face. Access to capital is one of the biggest barriers to closing the racial wealth gap, and MDIs are some of the only places LMI communities and communities of color can easily get that support. Unfortunately, the number of MDI banks has decreased from its peak of 215 in 2008 to about 142 in 2021, making continued support for these institutions even more integral.
The National Bankers Association (NBA), of which East West Bank is a member, was first formed in 1927 as a way to create an alliance between minority-owned banks to more efficiently and effectively serve their historically underserved communities. The organization supports the development of Black and minority-owned banks by providing necessary resources and advocating for their needs on a federal level.
The issues communities of color face are different from those of white middle-class communities, which serve as the basis for mainstream lending practices. For example, says Robert E. James, II, chairman of the NBA, some of the NBA’s member banks provide services to people for whom English is not their first language, and need to communicate complicated legal disclosures and regulatory requirements to them.
“I think that's important to make sure that regulators are sensitive to that, and other communities,” says James. “In the Black community, we've had historically depressed real estate values due to redlining and other kinds of discriminatory practices that took place in prior years. We have to make sure that people understand that some of the collateral that we're using to secure our loans is not necessarily going to maintain the same kinds of values that it does in the white community.”
“The NBA has been very instrumental in formulating policy that affected lending to people of color,” says Alden McDonald, president and CEO of Liberty Bank, a New Orleans-based MDI that has been a member of NBA for nearly 50 years.
For example, when McDonald first joined Liberty Bank, the FDIC initially wanted to put an automatic classification on loans to people with FICO scores below 660. “When I told the NBA that 80% of my customer base had FICO scores under 660, [the policy] was shot down,” says McDonald. The NBA advocated for a policy change on behalf for Liberty Bank and its customers. Had that regulation passed, it would have put Liberty Bank out of business.
Support for MDIs turns into support for these underserved communities, which in turn leads to greater racial equity. “Our business model has always been the mission of our bank, and that is to help the community have access to the capital, to loans, etc.,” explains McDonald. “And in the way you do that is through homeownership. The way you do that is to grow small business.”
In September of last year, the NBA announced its new 501(c)(3) nonprofit initiative to close the racial wealth gap, the National Bankers Community Alliance (the Alliance), of which the East West Bank Foundation is a founding member.
The idea for the Alliance stemmed from the launch of the Paycheck Protection Program. James, who also serves as president of Carver Development CDE, an affiliate of Savannah, Georgia-based Carver State Bank, noticed that people applying for PPP loans were running into the same challenges.
“What I found was that it didn't matter if the person was a local barber, a hairdresser, or a highly educated doctor or a lawyer—I still had to have the same kind of hands-on conversations with them to explain the process,” James shares. “Since they're trying to get this capital into the hands of the smallest businesses and minority communities that really needed it and were struggling, it seemed to me that having a hub resource that could bring different people together to help provide that kind of technical assistance to small businesses would be the most helpful.”
The Alliance is built on a four-pillar framework to support NBA members (taken from the website):
The Alliance is a new initiative but one that is necessary for the NBA’s member banks. Some of the challenges McDonald foresees for Liberty Bank and other MDIs is increasing competition with fintechs, marketing to potential customer bases, and, of course, capital. But with partners such as the East West Bank Foundation, JPMorgan Chase Foundation, Robinhood, and the Milken Institute, he believes the Alliance will help take NBA members to the next level.
“Like we used to say back in the ‘hood,” laughs McDonald, “if you can’t beat them, join them. We have to join in with the fintech companies and see how we can partner with them. Because they want the customer we want, and we have a better roadmap—and we have the channel that they need to make the company successful.”
One of the main issues James wants to focus on this year is getting more capital for the NBA’s member banks.
“We have a lot of different a lot of diversity among minority depository institutions. Many of us were able to get new capital in the last few years as a result of the racial equity movement and investments from some of the big banks, and some of us are going to get capital from the Emergency Capital Investment Program,” says James. “But there were other banks that were not able to access those programs because maybe their regulatory conditions didn’t allow it or other issues, so we really want to push for new capital at those MDIs.”
Additionally, James wants to push for greater digitization of member banks, to strengthen relationships with regulators to better help them understand the unique needs of MDIs, and to push for more collaboration among minority banks to target those larger loans and therefore make bigger impacts in their communities.
“I really do see more partnerships among MDIs as being really critical, and showing that banks that come from different communities of color can work together to support one another,” believes James. "Whether it's a big clean energy project in California or Georiga where East West Bank and Carver State Bank can participate together with other minority banks, or affordable housing in Louisiana and you get Liberty Bank to lead it and then our banks come together to put some capital in, we can start addressing the big problems in our communities and doing it by combining our capital, which is going to make us even stronger.”
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