Planet Money: The Planet Money indicator: NPR



SYLVIE DOUGLIS, BY LINE: NPR.

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STACEY VANEK SMITH, HOST:

This is THE PLANET MONEY INDICATOR. I am Stacey Vanek Smith.

DARIUS RAFIEYAN, BYLINE: And I’m Darius Rafieyan. Netflix has just announced that it will transfer 2% of its cash reserves – nearly a hundred million dollars – to black-owned banks.

MARTIN LUTHER KING JR: It’s part of a larger movement, the #bankblackmovement, which encourages people to withdraw their money from big, traditional banks and deposit it at black-owned financial institutions instead. This idea is not new. Martin Luther King Jr. in his last speech the day before his assassination in 1968 called on the people of Memphis to stage a, I quote, a “bank-in”.

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KING: Get your money out of downtown banks and deposit your money in the Tri-State Bank.

RAFIEYAN: Tri-State Bank is a black owned bank in Memphis that still operates to this day. But today, black-owned banks are an increasingly small part of the American financial system. There are currently only 21 black-owned banks in the United States, down from 36 ten years ago. Collectively, they control just $ 4.8 billion, or less than 1% of the country’s banking assets.

VANEK SMITH: Today on the show, we take a look at why this matters – the importance of black-owned banks – and why something like banking actually plays a pivotal role in racial disparities in the United States. .

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RAFIEYAN: Sidney King is the President and CEO of Commonwealth Bank in Mobile, Ala.

SIDNEY KING: Commonwealth was founded in 1976. It is the only chartered bank in the city of Mobile. We are the only local bank here in Mobile.

VANEK SMITH: It’s also the only black-owned bank in Mobile. And it’s pretty small by banking standards, only around $ 49 million in assets. They write checks, savings, small business loans. They have a small mortgage business that they are trying to grow. But like many black-owned financial institutions, they have seen their assets decline over the past 10 years.

KING: Our numbers have dropped dramatically. We are an endangered species.

RAFIEYAN: To understand why this matters, it’s important to look at the racial wealth gap in the United States. Thus, the median white household has about $ 170,000 in wealth. The median black household is about 17,000. In other words, white households have on average 10 times the wealth of black households. And the reason has a lot to do with banking, as the main driver of wealth creation in this country is home ownership.

KING: Because for most people, wealth is – you know, the accumulation of wealth is in the home. Most people don’t have disposable income because they live paycheck to paycheck. But this appreciation in the home is where their net worth typically increases. You know, when you look at mortgages made by majority banks, typically less than 1% of their mortgages are with African Americans.

RAFIEYAN: This disparity has its roots in the 1930s and the New Deal. Much of this body of law was the creation of federal agencies to encourage home ownership, such as the Federal Housing Administration or the FHA. He subsidized home loans and helped finance the creation of large suburban housing projects across the country. Mehrsa Baradaran is the author of “The Color of Money: Black Banks and the Racial Wealth Gap”. She says the post-war American real estate boom was no fluke, but rather the result of very targeted federal policy.

MEHRSA BARADARAN: In 1934, what the FHA, the New Deal-era credit bureaus are doing, is they sparked this unprecedented massive mortgage market. They create the 30 year fixed rate mortgage, which creates the America we know now. There was no mortgage before. There was no suburb. There was no American middle class as we imagine it. They created an American middle class and coded it in white.

RAFIEYAN: When the FHA subsidized the creation of these suburban housing estates, they would only do so on the condition that no houses were sold to black families and that each house had written in its deed that it could not. be sold to a black family. . This meant that the benefits of this huge federal housing program went mainly to white families. And it is the banks that have become the mechanism for this discrimination.

VANEK SMITH: The 1968 Civil Rights Act formally prohibited discrimination in housing, but Mehrsa says there was a built-in systemic bias in the banking industry that was never fully addressed.

BARADARAN: What we didn’t do when we had the Civil Rights Act was say, OK, let’s fix it. We had for hundreds of years a race-based credit system, a race-based economy that excluded black people, created poor neighborhoods here, and then wealthy neighborhoods there. And what the Civil Rights Act says is no more discriminatory. From now on, we are color blind. And that’s not how markets work. It’s not – you can’t just stop talking about it because they said, well, you can’t discriminate against a black owner based on their race. They’re like, oh, no, no, we’re not. We discriminate based on postcode and their FICO score. Oh okay. Well, in that case, go ahead and sell the subprime loans in these black neighborhoods because that’s what happened in 2008, right? So they sent – the banks sent the subprime lenders to some areas and not to others. To the right? And so that – so when the subprime crisis hits, black communities lose 53% of their wealth – just disappeared, not recovered.

RAFIEYAN: Mehrsa thinks that in 2020 there should be no need for black-owned banks. But, she says, generations of exploitation and exclusion have left us with a financial system primarily intended to serve white communities. Despite legislative efforts over the years, she says the system still does not regularly serve the black community.

VANEK SMITH: According to the FDIC, the Federal Deposit Insurance Corporation, nearly half of black Americans are unbanked or underbanked, which means they don’t have access to the financial services they need. Often times, this means they have to rely on lenders such as check cashing services or payday lenders, who can charge extremely high interest rates and fees. Sidney King, CEO of Commonwealth Bank, says many of his customers simply have a deep distrust of banks.

KING: In the African American community, they don’t see the big banks as being for them because, you know, you go back over the years, grandparents didn’t have banking relationships, parents in a lot of cases had no banking relationships. So a lot of people don’t feel comfortable going to these establishments.

RAFIEYAN: He says his bank, like most black-owned banks, is referred to as a community development financial institution focused on serving customers who would otherwise be excluded from the banking system. This allows them to take a more personalized approach.

KING: We have conversations with our customers. We get to know them and their situations. I remember a lady who was a nurse, had been in nursing for 22 years, perfect credit until her husband was on drugs. She had to file for bankruptcy, but she needed a car. So even though she had filed for bankruptcy, I gave her a car loan. And she never missed a payment, you know. But a lot of other institutions, when that person comes in, the bank officials say they refuse. You know, there are no questions asked. For most banks, you are just a number. Here, you know, our kids go to school together. We go to the same churches. We know our customers.

RAFIEYAN: This level of personalized attention is part of what makes a bank like the Commonwealth so special, but it’s also very time consuming and laborious. And that makes it harder for the Bank of Sidney to compete with the big banks who could use an algorithm to decide who gets a car loan.

VANEK SMITH: But Sidney says the granular knowledge of black communities enables black-owned banks to both effectively manage their risks and provide banking services to the people who really need them. This can mean giving loans to black-owned businesses, funding renovation projects in disaster-stricken neighborhoods and, of course, helping to promote black home ownership. In a typical black-owned bank, 67% of mortgages go to black households. This is compared to less than 1% in the average bank.

RAFIEYAN: And while black-owned banks have seen their numbers dwindle in recent years, the unrest sparked by the murder of George Floyd may have halted that trend.

KING: We’re seeing more and more interest in entering and opening accounts. We are seeing probably, if not two, maybe three times the number of new account openings over the past few weeks.

RAFIEYAN: Sidney says Commonwealth still only owns about 1% of black bank deposits in Mobile. He would like that number to rise to 5%. It would help him, of course. That would make the Commonwealth a quarter of a billion dollar bank. But it would also put the bank in a better position to provide much-needed services to people who still struggle to participate in the financial system more than 50 years after Congress passed laws meant to end discrimination in banking.

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RAFIEYAN: This episode of THE INDICATOR was produced by Camille Petersen and verified by Brittany Cronin. Our editor is Paddy Hirsch. And THE INDICATOR is an NPR production.

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