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HFSC George Floyd D&I Hearing

House Financial Services Subcommittee on Diversity and Inclusion

The Legacy of George Floyd: An Examination of Financial Services Industry Commitments to Economic and Racial Justice

Tuesday, June 29, 2021

Witnesses

Opening Statements
Chairwoman Joyce Beatty (D-Ohio)
In her opening statement, Beatty noted how after George Floyd’s murder, Americans of all backgrounds united in demanding justice and an end to the systemic racism that permeates American institutions and corporations. She said the voices of the many resonated in boardrooms and C-suites as corporate leaders used the moment to empathize with the frustrations of protestors, employees, and stakeholders. She said that George Floyd’s murder was an indisputable example of systemic racism that shocked the conscience of the American public. Beatty cited that the CEO of JPMorgan Chase, Jamie Dimon, said in the weeks following George Floyd’s death, “we are watching, listening and want every single one of you to know we are committed to fighting against racism and discrimination wherever and however it exists,” and that the CEO of Bank of America, Brian Moynihan, said in his testimony to the Senate Banking Committee in May 2021 that his company hosted thousands of “courageous conversations” with its employees and social justice leaders to foster understanding and a common approach to addressing injustice. She noted how leading banks and other financial institutions have pledged to serve as allies and apply their power, influence, and resources to support the fight for social justice and to invest in economic opportunities for Black communities that have been redlined and shut out. Beatty highlighted that U.S. corporations have pledged $50 billion, including $33 billion from financial services companies, but stated that while pledges and platitudes are important, tangible and transparent actions are necessary. Beatty said corporations must live up to their commitments, be intentional, and implement sustainable practices that permanently address the economic inequities that divide the nation. She stated that transparency and accountability must be at the heart of corporate commitments. Beatty closed by calling upon financial companies to fully embrace the spirit of her legislation, H.R. 2123, the Diversity and Inclusion Data Accountability and Transparency Act.

Ranking Member Ann Wagner (R-Mo.)
In her opening statement, Wagner stated that the Committee believes that all Americans should have access to financial institutions and a financial system that supports and builds economic prosperity. She noted that America’s banks and other organizations in the financial services industry promised to devote resources to advancing racial equity, noting that banks pledged billions of dollars to close the wealth gap, drive home ownership, bolster Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs), and partner with community organizations focused on racial equity. She noted that Bank of America committed $1.25 billion over five years to advance racial equality and economic opportunity, with an announcement in May 2021 to expand its national affordable home ownership program. Moreover, she noted that Bank of America has made more than $350 million in investments, including equity investments in 40 minority-focused funds and 14 MDIs and CDFIs. She also highlighted Goldman Sachs’s 2021 announcement to commit $10 billion in investment capital to impact the lives of one million Black women and “drive investment in housing; healthcare; access to capital; education; job creation and workforce advancement; digital connectivity; and financial health.” She also noted JPMorgan Chase’s 2020 commitment of $30 billion over five years for racial equity, including initiatives for affordable housing, small business expansion, and neighborhood development. She concluded that Congress has also contributed by providing $12 billion to CDFIs and MDIs in the December Consolidated Appropriations Act for FY 2021.

Testimony
Fabrice Coles, Vice President of Government Affairs, Bank Policy Institute (BPI)
In his testimony, Coles stated that banks are integral to improving outcomes for all communities, especially communities of color that have been left behind economically. He said that banks have developed strategies, agreed upon budgets, allocated resources, and built teams to better serve these communities and make investments, cement partnerships, and continue product innovation and philanthropy. He stated that though more than $50 billion has been committed and progress has been made, much work still remains. Coles noted that racial equity gaps have proven intractable, but the events of 2020, the disproportionate effect of the pandemic on Black communities, and the global response to the death of George Floyd have spurred new action. He stated that BPI members know that they must invest in people and organizations that are driving positive economic outcomes, and that they are making investments in CDFIs and MDIs, supporting the next generation of Black entrepreneurs, and bolstering neighborhood revitalization efforts. He noted that banks are investing in the future of their own organizations by recruiting, retaining, and promoting Black talent, while also working harder to ensure that the senior levels of their firms reflect America’s diversity. Coles closed that banks, in the year since George Floyd’s murder, have rededicated their efforts to drive stronger racial equity and inclusion.

Donald Cravins, Jr., Executive Vice President and Chief Operating Officer, National Urban League
In his testimony, Cravins stated that the National Urban League is dedicated to economic empowerment, equity, and social justice and collaborates at the national and local levels with community leaders, policymakers, and corporate partners to focus on education, health, jobs, and housing. He noted that the National Urban League has specific programs designed to foster financial literacy, home ownership, small business financing, and home foreclosure prevention, saying these programs touch nearly two million Americans annually. He stated that financial services corporations’ commitments must symbolize the end of corporate philanthropic redlining, adding there is still real work that has to be done and that the resources that banks have pledged cannot by themselves remedy centuries of economic hardships disproportionately born by African Americans. Cravins cited that the median wealth of African American families is $17,000 compared to $171,000 for white families; that only 42 percent of African Americans own their homes compared to 73 percent of white families; that more than one in four African Americans do not have a credit score; and that 17 percent of African Americans do not have traditional bank accounts. He noted that these statistics are due to the exclusion of African Americans from the Agricultural Revolution due to enslavement and from the prosperity of the last century due to disenfranchisement and Jim Crow discrimination, which he said, when added to the mass incarceration that followed, makes clear why the persistent wealth gap continues to exist. Cravins closed that financial institutions must look inward and ensure that their own systems create equity and inclusion instead of just promoting monetary commitments externally, stating that real change can only occur through transparency and a willingness for corporations to set an example.

Darrick Hamilton, Professor of Economics and Urban Policy, The New School
In his testimony, Hamilton stated that George Floyd’s murder was the result of a devaluation of his life because of racial prejudice, noting that the immoral devaluation of Black lives has been ingrained in America’s political economy and is long overdue for rectification. He stated that governments have a fiduciary responsibility to facilitate inclusion, civic engagement, social equity, and that they should promote diversity, inclusion and belonging. Hamilton argued that such efforts require a deeper understanding of how devaluation of individuals based on identity relates to political notions of which individuals are deserving and which are undeserving. He stated that the current economic system is founded upon the values of self-interested accumulation, whereas it should be grounded in economic inclusion, civic engagement, social equity, human dignity, sustainability and shared prosperity. Hamilton stated that Congress needs to provide public options that directly compete with and crowd out inferior private options that fail to ensure universal and quality access to healthcare, housing, schooling, financial services, capital, and free mobility throughout society without the psychological and physical threat of detention. He closed by noting that perpetual inequality is not rooted in deficient people, but in deficient resources and power allocations.

Jonay Foster Holkins, Senior Director of Policy, Business Roundtable
In her testimony, Holkins stated that in response to the murder of George Floyd, Business Roundtable CEOs released a set of policing reform principles and have continued to press publicly for bipartisan policing reform legislation, adding that members then turned to the issue of addressing the wealth gap. She noted that this is a result of hundreds of years of policies that have denied economic prosperity to African Americans. Holkins mentioned that on October 15, 2020, the Business Roundtable’s Special Committee on Racial Equity and Justice released a set of corporate actions and public policy recommendations focused on employment, finance, education, housing, health, and justice. She said that over the past year, Prudential made a $10 million contribution to remove barriers to financial wellness in underserved markets; and how Bank of America made over $350 million in various investments across the areas of health, jobs, affordable housing, and small businesses, noting that these are just a few of the many examples of member companies making good on their promises. Holkins added that the Business Roundtable announced a multi-year effort to reform their hiring and talent management practices and to address inequities in employment practices. She stated that one year of work cannot undo centuries of harm done to Black people, saying there is a lot more work that must be completed in order to effectively address economic equality and equity.

Hassan Miah, Chief Executive Officer, Paybby
In his testimony, Miah stated that over the past few months, Paybby has met with several of the largest banks, including the largest Black-owned banks in the country. He noted that major banks have announced large financial commitments to the Black community and that Black banks have announced investments from the big banks, but that the scale of these announcements appears to be larger than the scale of the actual investments made. Miah stated that the biggest concern is the lack of key performance indicators (KPIs) that provide accountability for the results delivered by corporations. He added that the approach and types of commitments taken by the banking industry may not make any material difference unless expanded, stating that while the financial services industry includes private equity and venture capital corporations that collectively account for a large share of the capital used to finance businesses, Black entrepreneurs only receive about one percent of all private equity and venture capital. He continued that while the venture capital industry has made several investments in the last year supporting new Black-founder funds, the scale still appears to be minuscule relative to the industry and not of any major material significance. Miah lamented that the lack of investment in Black businesses and Black entrepreneurs has continued to result in the transfer of wealth from Black communities into other communities.

Question & Answer
Accountability
Rep. Maxine Waters (D-Calif.) noted that several financial institutions made promises to lend billions in capital for MDIs and CDFIs and other grants for black businesses but have been slow to follow through. She asked how to increase the disclosure necessary to hold public companies accountable to their diversity and inclusion commitments. Cravins said this hearing is a very good start and that bringing companies and their CEOs before the Committee to talk about their commitments should be a recurring check-in.

Beatty asked if transparency and accountability around diversity and inclusion build confidence that CEOs and companies are living up to that pledge. Holkins said yes. Beatty then asked Coles if BPI believes this type of performance reporting should be mandatory. Coles said no. Beatty questioned why BPI opposes this reporting if many of their members support it. Cole said BPI generally does not support increased regulatory reporting requirements and that there are other transparency requirements in place.

Beatty asked Hawkins if he supports racial equity audits. Hawkins said if we value something, we should measure it and hold entities accountable.

Achieving and Measuring Success
Beatty asked what corporate America must do, besides making financial donations, to eliminate systemic barriers that contribute to the racial and gender wealth gaps. Cravins said transparency and accountability, as well as looking internally at who is brought into the company. He added that the one African American in the room cannot be the only person lobbying for diversity and inclusion.

Rep. Madeleine Dean (D-Pa.) asked for an elaboration on how the National Urban League and similar organizations are funded and help financial institutions achieve higher levels of equality. Cravins said their affiliates live in the communities facing inequities and disparities which helps them address the need for more consumer trust in the banks.

Rep. Nikema Williams (D-Ga.) asked Coles how their members are measuring progress towards the objectives they have devised to address the racial wealth gap. Coles said BPI members are tracking this according to a few different buckets: the number of CDFIs and MDIs being invested in, philanthropic disbursements and commitments they have made; and the number of small businesses they have engaged with. He said standardized metrics across the industry is something many companies are looking at in terms of tracking and reporting.

Rep. Jake Auchincloss (D-Mass.) asked Coles how banks should measure their success for increasing Black homeownership. Coles said there is a lot of current intentional support and activity by banks to increase homeownership through grants and programs.

Board Member and Executive-Level Diversity
Waters said Business Roundtable has only three out of 25 board members who are Black and zero at executive levels and above, and that BPI has zero Black people in either category. She asked how it is possible to lead diversity and inclusion initiatives when the company itself lacks diversity. Holkins said Business Roundtable and their member companies take diversity and inclusion very seriously, and in her own experience she feels heard, seen, listened to, and valued.

Banking Deserts
Wagner stated that nearly 7.1 million U.S. households are unbanked and asked how Paybby is expanding access to affordable financial services so that expensive services do not further inhibit the ability to build wealth. Miah said fintechs offer free banking accounts and that there needs to be more support to push that into communities. He added that in order to get a bank account, you must pass Know Your Customer (KYC) rules, but that Black and brown individuals pass KYC rules at about one-third less the rate than whites, highlighting the need to find other ways to qualify people.

Rep. Anthony Gonzalez (R-Ohio) acknowledged the lack of trust in financial institutions by underbanked communities and asked how Paybby solves it. Miah said that even though they are a fintech, they still sit on top of an FDIC bank and have to get their customers approved by the underlying bank. As a result, he said they are pushing the underlying banks to pursue alternative scoring and KYC methods. Gonzalez also asked how artificial intelligence (AI) could help those efforts. Miah said AI and machine learning for credit scoring algorithms could provide a more balanced perspective and help them be more inclusive for communities.

Wagner asked about expanding credit products for underserved borrowers and how these products can benefit unbanked households. Coles said banks are expanding their offering of low-fee and no-fee transaction accounts as well as no overdraft fees, which are all attractive to unbanked consumers. He said these BankOn accounts are a powerful tool to promote financial inclusion and we should expect to see many more rolled out in the near future.

Beatty asked what strategies best address the financial services needs of consumers in banking deserts. Hamilton said there needs to be public options and public banks to set a floor that ensures quality access is available to anyone. He said the private sector can exist if they want to, but with a floor provided by the government. In contrast, Miah said public banks are not necessary.

Building Trust
Wagner asked how banks can create better community partnerships to build trust. Coles said communication with the customer is key in ensuring that borrowers are comfortable with the banks. He said the way to do so includes more marketing about the safety of these accounts and their low-cost attractiveness, as well as more partnerships in the community in general.

Fintechs
Gonzalez asked Miah how Paybby as a fintech is able to deliver quality services. Miah said they do not have the legacy problems of a major bank because they were built from the ground up as a software company. He added that since the last financial collapse in 2009, small banks can now offer fintechs the ability to collect a one percent merchant fee which makes even low spending customers profitable.

Beatty asked if fintech providers should be regulated to increase transparency and accountability around their diversity and inclusion performance and practices. Miah said he is unsure whether fintechs should be regulated, but believes there should be more transparency on what they are doing. He added that regulators could push more banking regulations to foster credibility and trustworthiness in fintechs as a way to increase the participation from underbanked communities.

Environmental Racism
Rep. Rashida Tlaib (D-Mich.) asked how environmental racism has contributed to the racial wealth gap. Hamilton said it results from an infrastructure in which Black people do not have access to good air or land, and explained that this is a product of the fact that Black people have not been afforded political and economic capital throughout U.S. history.

Tliab asked if Business Roundtable members are familiar with the term environmental racism. Holkins said many of their members are aware of it and take seriously the effects of climate change on underserved populations. Holkins said she will go back to her team to further discuss and consider incorporating environmental impacts into their racial equity and justice commitments.

Capital Formation
Rep. William Timmons (R-S.C.) mentioned his plans to introduce the Improving Capital Allocation for Newcomers Act of 2021. He asked if access to capital for entrepreneurs is the primary obstacle for business formation, and if increasing the cap on capital contributions and the allowable number of investors in venture capital funds will assist minority and women entrepreneurs. Miah said access to capital may be the biggest single problem these individuals have and added that many do not trust financial investors and, consequently, often do not apply for this capital.

MDIs and CDFIs
Rep. Sylvia Garcia (D-Texas) asked what must be done, beyond financial support, to increase the presence and strength of MDIs and CDFIs among minority communities. Cole said that by statute, 60 percent of a CDFI’s activity must be in underserved communities and argued that as a delivery channel for supporting financial inclusion, there might not be a “better silver bullet.” He said he was pleased to see the allocation of $12 billion in capital support for these institutions in the recent appropriations bill and added that this will provide more resources for technical assistance, technology transitions, and small business development support. Cravins said it all goes back to trust, noting that these community-based organizations do a better job of reaching the persistently underbanked individuals.

Other Investment Areas
Auchincloss mentioned the idea of a “Marshall Plan for Main Street” and asked what areas they should encourage states and cities to direct infrastructure money into. Cravins said the money should go towards schools and more access to broadband and technology to help level the playing field. He emphasized the need to ensure that Black people not only benefit from this as recipients, but as suppliers and businesspeople, which would foster more supplier diversity.

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