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How Racial Inequality Manifests In The U.S. Banking System.

STEVE INSKEEP, HOST:

Black-owned banks are a shrinking part of the financial system. There are only 21 of them in the United States. A decade ago, there were 36. Collectively, these Black-owned banks control just $4.8 billion, which is less than 1% of this nation's banking assets. Stacey Vanek Smith and Darius Rafieyan of our daily economics podcast The Indicator from Planet Money explain why banking lies at the heart of America's racial disparities.

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DARIUS RAFIEYAN: White households have, on average, 10 times the wealth of Black households. And the reason for this has a lot to do with banks.

SIDNEY KING: Because then most people, that appreciation in the home is where their net worth typically grows.

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

KING: You know, when you look at mortgages that are made by the majority banks, typically less than 1% of their mortgages are to African Americans. So we provide a service to a historically underserved community that has systematically been kept out of the wealth system.

STACEY VANEK SMITH, BYLINE: This disparity has its roots in the 1930s and FDR's New Deal. Mehrsa Baradaran is the author of "The Color Of Money: Black Banks And The Racial Wealth Gap."

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VANEK SMITH: She says generations of exploitation and exclusion have left us with a financial system that is primarily geared toward serving white communities.

MEHRSA BARADARAN: In 1934, what the FHA, the New Deal-era credit agencies do is that they unleash this unprecedented massive mortgage market which creates the America that we know now. There were no mortgages before then. There were no suburbs. There was no American middle class.

RAFIEYAN: When the FHA subsidized the creation of these suburban housing developments, it would only do so on the condition that no homes be sold to Black families and that every home have written into its deed that it could not be resold to a Black family. This meant that the benefits of this massive federal housing program went mostly to white families.

VANEK SMITH: The Civil Rights Act of 1968 formally outlawed housing discrimination, but Mehrsa says there was a systemic bias built into banking that was never fully addressed.

BARADARAN: We had, for hundreds of years, a race-based credit system, a race-based economy that excluded Blacks, that created poor neighborhoods here and then rich neighborhoods there. And what the Civil Rights Act say is no more discriminating. From now on, we're colorblind. And that's not how markets work.

RAFIEYAN: Despite legislative efforts over the years, Mehrsa says the system still routinely underserves the Black community.

VANEK SMITH: At a typical Black-owned bank, 67% of mortgages are given to Black households. That's compared with less than 1% among banks that aren't Black-owned.

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VANEK SMITH: Sidney King, the 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 many instances, didn't have banking relationships. So a lot of people don't feel comfortable going to those institutions.

RAFIEYAN: And while Black-owned banks have seen their numbers dwindle in recent years, Sidney thinks the unrest sparked by the killing of George Floyd may have interrupted that trend. In the last few weeks, he's seen an increase in new account openings at Commonwealth.

Darius Rafieyan.

VANEK SMITH: Stacey Vanek Smith, NPR News.

(SOUNDBITE OF MOKHOV'S "AUSPICIOUS PATH") Transcript provided by NPR, Copyright NPR.

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