The Other Face of Financial Crime
Unfortunately, since discrimination of Black people is an issue that has been going on for hundreds of years, taking on different shapes and forms — it has resulted in deep socio-economic patterns and consequences. In the United States, the average financial stability and security of Black people when compared to that of white is by many times worse.
“While family median net worth is nearly $171,000 among white families in the US, for Black families it is just $17,600” according to the Federal Reserve’s 2016 Survey of Consumer Finances. That’s almost 100 times less! To address any dismissive speculations, it is important to stress that this is not a result of financial illiteracy, rather, “it’s the result of long-standing and ongoing racial discrimination.”
So how does this discrimination look like in the financial industry and what can be done about it?
Photo: Anastasia Narkevich and Nikkita Nair
Discrimination on Both Sides of the Till
A fairly recent incident at JP Morgan Chase, the largest bank in the United States, showed how Black people can be mistreated while being both customers and employees and the role stereotypes play. Both African Americans, Jimmy Kennedy — a retired National Football League player, and Ricardo Peters — his once financial advisor at JP Morgan Chase, shared their experiences of mistreatment and racial discrimination at the bank.
Both Mr. Kennedy and Mr. Peters recorded their conversations with bank employees and ended up filing complaints with overseeing institutions. The details of these two interconnected cases are worth a read, especially for confirming the veracity of discrimination that took place, yet here are just some summarized instances to convey the injustices:
- Mr. Kennedy struggled to become a “private client” at JP Morgan Chase in Arizona simply because he was bigger than the average person and an African American (uncommon in Arizona), and because bank employees were apparently intimidated and scared to deal with him.
- Mr. Peters was wrongly accused by a manager of taking customers’ files home at night in violation of the bank’s code of conduct. This made Mr. Peters feel that his white managers had stereotypically viewed him as more suspicious.
- Mr. Peters witnessed his superior referring to one of their Black customers who had received a $372,000 death settlement as not worthwhile, since she was “receiving social assistance and wouldn’t know how to manage the money”. The superior had also prevented Mr. Peters from working with that client, even though Mr. Peters argued that the bank’s role was to help individuals make savvy and wise financial decisions. While the superior was aware of the client’s subsidized housing, he claimed to not be aware of her race.
- Mr. Peters struggled to get a promotion to a private client advisor, and instead was moved out of a central office where he worked with other financial advisors to a windowless one in the back of the building. He was later transferred to a branch in a less wealthy neighborhood.
- Mr. Peters filed a formal complaint with the bank as he felt he was being treated differently because of his skin color and race. Several, months later he was fired by his superior. Mr. Peters filed a discrimination claim with the federal Equal Employment Opportunity Commission and the civil rights division of the Arizona attorney general’s office, accusing JPMorgan of racial discrimination.
- After Mr. Peters’ termination, Mr. Kennedy was assigned a new financial advisor. Mr. Kennedy found the new advisor to being experienced and felt the only reason they were paired was because of their shared skin color. This financial advisor was the one to point out that because Mr. Kennedy was a “big black man in Arizona” bank employees were afraid to deal with him.
Luckily, both Mr. Peters and Mr. Kennedy made audio recordings of their conversations and therefore evidence of their mistreatment. However, their cases are only few of many as racism in American banks can be seen on many levels and occasions:
- small numbers of Black executives in leading positions;
- placing Blacks in poorest branches and cutting them off from career opportunities;
- Black customers being profiled, viewed with suspicion, and questioned over basic transactions;
- Black mortgage borrowers being charged higher mortgage rates than white borrowers and having applications denied where they would be approved for whites.
Photo: Vlad Tchompalov / Unsplash
So what can be done?
There are multiple ways that the financial industry can help break the cycle and take the lead in improving the current situation. Financial institutions have a significant role to play as they are ultimately the gatekeepers of the capitalist system. A recent article from Boston Consulting Group provided a number of suggestions summarized below:
- Making financial wealth more accessible by developing new products that help promote Black people’s financial stability and encourage savings. An example of such could be financial institutions partnering with employers to encourage a corporate savings plan, while targeting employers that have a significant Black-American demographic, as well as extending retirement savings opportunities to those currently not eligible.
- Investing in Black-Americans and their businesses through partnering with organizations that support Black entrepreneurs. Creating asset management products that invest in companies leading and promoting racial inclusion, and consequently attracting investors with similar values.
- Exercising the authority that comes with being shareholders, stakeholders and lenders to promote racial inclusion and condemn discrimination through adopting mandatory diversity & inclusion disclosure requirements among companies. Taking a position on racial discrimination and voicing it. Changing local policies and behaviors through their seat at the community table.
- Developing strategies that will attract the next generation of Black investors through utilizing advanced analytics to create tailored and personalized offers for Black investors. Encouraging diversity and inclusion among FI employees to create a less biased environment.
Photo: Nikkita Nair
Larger Scale and Everyday Solutions
Additionally, Chris Brummer’s working paper “What do the Data Reveal about (the Absence of Black) Financial Regulators?” published this year points to the issue of insufficient African American representation in the Financial Regulatory sector.
The author explains that since “financial regulatory agencies are ultimately tasked with creating rules of the road for America’s capitalist system” and “are responsible for framing policies that determine how $70 trillion in U.S. assets are regulated,” they require African American presence to make “decisions that impact their community directly.”
This paper reveals that since the New Deal, out of 327 individuals appointed to the position of authority in financial regulatory agencies, only 10 have been Black, thus totaling to a mere 3%. Consequently, a significantly larger representation of African Americans is needed to allow for more direct involvement in creating the rules and policies of finance that affect this community just as much as any other.
Financial institutions should also provide their employees with consistent training on debunking stereotypes, letting go of biases, creating more understanding around the discrimination experienced by African Americans and how this demographic can become more included in accessing and managing financial wealth.
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