In a time when the eyes of Americans—white Americans especially—have been opened to the country’s vast racial inequalities, those of us who have been working for social justice are learning more about what we need to do while many others are just now learning about systemic causes of inequality. Although many in our society (and in corporate offices) claim to want to achieve lasting change, all must understand what this would mean for the banking system, and how each of us can contribute to that process.
As mission-driven institutions, nonprofit organizations and foundations can learn about what their money is doing when they aren’t spending it and it is sitting in the bank. How can we ensure our money is working for our missions, and not against them?
The Impact of Banks on Racial Inequality
Banking has fueled racial inequity and social harm in many ways and for a long time. Before the Fair Housing Act passed in 1968, banks regularly contributed to racial segregation and wealth inequality in the US by refusing to make loans to Black Americans or in neighborhoods that were predominantly Black. The legacy of this “redlining” persists to this day.
On top of that, far too many banks have continued to engage in discriminatory banking practices. In the 2000s, Black and Latinx Americans who were able to purchase homes and gain some wealth were disproportionately targeted for high-cost predatory loans. When the crash came, the nation’s already enormous racial wealth gap grew even larger. The history of redlining and predatory lending is a primary reason why white Americans on average have 14 times the wealth of Black Americans today.
Racism remains endemic to the banking industry. We see this in the media’s many stories about how banks treat both employees and customers—with Black Americans, American Indians, and other people of color facing higher account fees, blocked access to mortgages, and less favorable terms when they do obtain loans. More broadly, banks continue to fund activities counter to many of our missions, financing fossil fuel firms, prisons, detention centers, and payday lenders. With so much money sitting in bank accounts in one way or another, most organizations and individuals are unknowingly funding these activities with their deposits. (According to 2020 World Bank data, 2017 US financial system deposits in the US amount to 80.8 percent of gross domestic product.)
Moreover, the governance and corporate practices of many banks also contribute to income and race inequality. A third of bank tellers are on public assistance, while the CEOs of the largest banks receive tens of millions per year. On average, CEOs at the nation’s largest 20 banks took home 173 times what their median-wage worker earned in 2018. The US House Financial Services Committee’s analysis of bank diversity data found that “Blacks and [Latinxs] comprise four percent or less of banks’ executive and senior level employees and six percent or less of their first/mid-level leadership employees.” Banks’ focus on quarterly stock earnings for their shareholders and compensation for executives leads to astonishing practices like the widespread opening of fake accounts at Wells Fargo.
Now Is the Time to Change the Banking System
It’s clear from just these few examples that the banking system, like so many of our systems, needs radical change. Fortunately, we are in a moment when such change might be possible. The global pandemic, in conjunction with decades of hard organizing by so many people working to fight systemic racism, has created an opening. Spurred in part by the murder of George Floyd and the shock of the pandemic and resulting economic shutdown, a growing number of Americans have begun to see the systems behind wealth inequality and structural racism rather than simply ascribing inequality to individuals’ actions or “merit.”
Some banks, like other corporations, have made commitments in recent months to combat racism, fight climate change, and divest from prisons and detention centers. But to migrate from individual statements, commitments, and programs to broader systemic change, banks must adhere to new standards for the long haul. These standards must have equity at the core. Only in this way can we hope to build a culture that is no longer based on the fear, scarcity, and false meritocracy that enabled the development of systems that fostered vast inequities of pay and opportunity.
At Beneficial State Foundation, to improve practices in the banking sector, we have focused on building Equitable Bank Standards that clearly define both mission-aligned and harmful practices of banks. This enables individuals and organizations to know whether their deposit dollars are working in support of or against their values and missions. These standards also serve to provide to banks making these changes in good faith a clear roadmap to transition to a new era of banking—banking that is equitable, anti-racist, and nourishes our communities and planet.
These banking standards (close to 200 in total) fall into five categories:
- Governance in the Public Interest: Banks must align their financial success with the balanced success of all stakeholders (customers, colleagues, communities, shareholders, planet), especially those who’ve been excluded from the banking system.
- Equitable Lending and Investments: Banks must direct the majority of capital toward commercial loans, consumer loan portfolios, borrowers, and investments that support a regenerative economy that is fully inclusive, racially and gender just, and environmentally restorative. Banks must meet the credit needs of communities served and explicitly strive for loans and investments that do no harm.
- Equitable Products and Services: Banks must apply a mission screen to create positive social and environmental impact at the core of every product or service. They must use an equity lens when designing pricing, terms, disclosures, and trainings, as well as sales and marketing strategies. Bank products must be accessible and priced fairly no matter one’s income or wealth.
- Equitable Corporate Practices: Banks must integrate social and environmental principles and guidelines into all corporate practices, including human resources, procurement, partnerships, and branch operations.
- Advocacy for a Just Financial System: Banks must exercise their duty to serve the public interest by advocating for the public good. They must ensure that regulation protects both customers with the least bargaining power and the environment. Banks must not advocate for deregulation, and they must be transparent about their advocacy.
Beneficial State Foundation is not alone in this system-building work. We collaborate with other mission-driven banks, as well as with associations like the Global Alliance for Banking on Values, the Community Development Bankers Association, and the United Nations Environment Programme Finance Initiative, all of whom are working to build a new cadre of banks focused on positive social and environmental impact while simultaneously avoiding harm. Together these organizations represent more than 200 banks and have over $50 trillion in assets.
What Can Nonprofits and Foundations Do?
As mission-driven organizations, nonprofits and foundations can ensure that our deposit dollars are working in support of our causes and values. Here are some specific actions to consider.
For nonprofits and foundations:
- Ask your bank key questions about its lending and practices. Consider the standards and examples above, as well as your organization’s mission and programs.
- If your bank’s answers aren’t satisfactory—
- Demand that it commits to changing its practices.
- Stop promoting the bank’s brand with any sponsorship dollars your organization receives.
- Move your money to a more mission-aligned bank (see the associations mentioned above or feel free to reach out to us at Beneficial State Foundation for ideas for an aligned bank in your local area).
- If you’re passionate and down for the cause of banking systems change, you can join us in advocacy. Beneficial State Foundation is advocating for laws, regulations, and policies that manage and enforce equitable banking. We also engage in public campaigns to encourage aligned commitments and actions from banks. There are plenty of opportunities to engage in this work via social media as well.
Additional Ideas for Foundations
Here are a few more opportunities for foundations to consider acting on to make our banking system more equitable and more aligned with collective well-being:
- Provide credit enhancements to help banks provide more loans to Black people, Indigenous people, and people of color (BIPOC), along with other critical and innovative forms of mission-based lending.
- Become an investor in mission-driven and BIPOC-owned banks and their products through program-related investments and mission-related investments.
- Provide replacement grants to nonprofits who choose to decline sponsorships from banks that are not aligned with their values.
As more people recognize the need to challenge structural racism, patriarchy, economic inequality, and other forms of oppression, there’s an unusual opportunity in front of us to advance systemic change in the financial industry. And the changes we make—whether we move our money or get our current banks to change their practices—can be large and lasting.
When your bank invests in a way that is aligned with your mission, that means your idle cash is making a positive contribution without you having to take any specific action. Alas, the contrary is true as well: If your bank invests in a way that is counter to your mission, that means your idle cash can be counteracting the good work that you do.
With the nonprofit sector accounting for over $3 trillion in assets, aligning our money with our values could make a huge difference in our sector’s ability to address longstanding inequity. Given the many challenges we face, we need to think creatively and act to leverage as many of our assets as we can to achieve our mission goals.