A recent forum organized by Georgetown Law’s Institute of International Economic Law (IIEL) brought together leaders from Congress, regulatory agencies, and the private sector to discuss how technology and policy can chart out a better future for minority-owned financial institutions.
The forum, entitled “Can Black and Brown Banks Compete in a Digital Economy?”, was held in commemoration of Juneteenth, which commemorates the emancipation proclamation and was recently mandated as a federal holiday in the United States. The 100th anniversary of the Tulsa Massacre of 1921 also provided a backdrop for the event.
The event’s organizer, Dr. Chris Brummer, the Agnes N. Williams Research Professor at Georgetown Law and IIEL faculty director, observed that Juneteenth offered an important opportunity to look forwards and back, and to take stock of minority banks and to the technologies, policy conversations, and collaborations that focus on the needs of Black and Brown communities.
Systemic Barriers to the Financial Advancement of Black Communities
Many financial barriers began during or before slavery and continued after emancipation that have limited opportunities for Black and African American communities to create wealth.
For example, until slavery was abolished in 1865, Blacks were legally prohibited from earning wages; entire institutions had to be started from scratch, including the Freedman’s Bank, to service a population that for the most part had been viewed as property just months prior. After emancipation, and the end of Reconstruction, new laws were introduced with the aim of marginalizing Black and African American communities. For example, although Social Security was first initiated in 1935, it did not cover most Blacks, particularly farmers and various domestic workers – industries in which Blacks made up the majority of workers. Legalized racial segregation in the South also outlined the kinds of work that Black Americans could do and what they could earn.
Other factors often cited that contribute to the racial wealth gap include:
- Redlining and limited access to mortgages and homeownership: Although redlining was outlawed in 1968, it still occurs today. Recent studies found that 75% of neighborhoods that were redlined 80 years ago still struggle economically today.
- Securing employment and enjoying better earning opportunities: Employment discrimination and limited access to hiring opportunities can make it difficult for Black families to break the cycle of poverty and build wealth. For example, since the 1990s, White applicants have received over 35% more callbacks for job applications than Black applicants with identical résumés.
- Financial literacy: Although Blacks score highly when it comes to understanding borrowing and managing debt, they fall behind their peers when it comes to understanding risk, uncertainty, insurance, and investments. These gaps may be attributable to limited access to educational opportunities.
- The costs of financial experts: Financial advisors can help navigate the complexities of paying taxes, pay down debt, and saving. However, many Black Americans lack financial knowledge in these areas or cannot afford the specialized consultancy services that can help them save money and build wealth.
- Education expenses and student loans: A lack of wealth can lead to fewer opportunities for upward mobility in the future in the form of pursuing higher studies and paying for it. All too often, Black families take on risky student debt options to finance their higher education.
The Impacts of Exclusion and Marginalization
The impacts of these impediments to access, inclusion, and wealth-generating opportunities can be seen in the data. According to figures collected by Inequality.org:
- During the COVID-19 pandemic, Black infection and death rates have been significantly higher than vaccination rates in 23 states.
- Black American mortality rates are significantly higher than all other races and ethnic groups except for Indigenous people.
- Black and Latinx workers were much more likely to jobless than Whites after pandemic-induced shutdowns.
- Only about 20% of Black people work in jobs where they can telework, compared to almost 30% and over 35% for White and Asian workers, respectively.
- Black and Latinx workers make up a disproportionate number of essential workers, which may explain why these groups have been more exposed to virus risks.
- The median Black family has about one-eight ($24,000) of the wealth of the typical White family (about $190,000).
- 72% of White families own their home, compared to less than 45% of Black families.
- Black graduates have proportionally more student debt than their White counterparts.
- Black unemployment rates are roughly four points higher than those of Whites.
The Roles of Technology and Policy
Given these data points, considerable attention has been directed towards whether technology and policy improvements could speak to some of the historical challenges and roadblocks to financial inclusion.
For example, McKinsey recommends the following to help alleviate the public, private, and social factors that impede wealth generation for Black and Brown communities:
1. Geography matters, and banks and financial institutions should rethink how they manage financial services costs in Black and Brown communities and how outreach can be improved in these communities.
2. Diversity should be improved in the leadership and decision-making ranks of financial corporations so that these organizations better understand the needs of the communities they serve.
3. Implement better and more inclusionary credit decisioning.
4. Alleviate financial pressures with better, more supportive policies.
While the last point above is clearly policy-related, the other three can be addressed using technology. Performant user-facing apps, AI-based decision-making, and innovative, Big Data-driven programs and services such as fairer credit scoring and user-specific support and services can help Black and Brown financial institutions and the communities they serve to deliver and enjoy better, more focused, and more relevant financial services.
There is no silver bullet that can address all of the systemic financial inequalities that Black and Brown communities face. For example, overcoming the tax disadvantages that stem from the disparate treatment of labor and capital, discrimination in lending and housing assessments that lead to lower levels of homeownership in Black communities, and labor market discrimination that leaves African Americans with lower access to stable jobs, good wages, and retirement benefits, will take more than a single tech or policy fix.
Forums like that sponsored by Dr. Brummer and Georgetown offer an interesting opportunity to address these challenges form a new vantage point. Effective policymaking and the strategic use of technology to eliminate long-standing unfair practices are the first steps toward leveling the playing field for Black and Brown communities. By coupling technology with structural changes in fiscal and other policy, along with ensuring the digital transformation of Black and Brown banks and other key industries, policymakers might begin to move the dial in bringing about beneficial change for the most disadvantaged members of our communities.