Big banks and regulators: Do more to close the racial wealth gap – American Banker

CEOs of America’s largest retail banks are testifying before Congress this week. As lawmakers turn their eyes on the banking industry, minority banks and their partnerships with the largest U.S. banks can shed light on the industry’s efforts to eliminate racial wealth disparities and the growth that these partnerships can drive. To close the racial wealth gap, banks should deepen partnerships with minority-led banks, and policymakers should eliminate regulatory barriers that prevent these banks from reaching their full potential.

Much of the work of providing access to bank accounts, home and business loans, and wealth-building opportunities for Black, Brown and Indigenous communities has historically fallen on the shoulders of under-resourced community lenders. Minority depository institutions and community development financial institutions have been on the front lines working to eliminate barriers to building wealth, credit and economic resilience for minority communities. MDI branches, which are often in census tracts with high minority populations, serve as critical hubs of financial opportunity in these communities.

As the nation emerges from the COVID-19 pandemic, minority businesses and low- to moderate-income consumers are trying to emerge as well. Minority banks remain at the forefront of efforts to rebuild communities and close the racial wealth gap. This time, larger banks are committing to providing MDIs with support. Banks can fill gaps in funding, scale, staffing and technology that challenge these institutions.

MDIs and CDFIs are essential to the economies of underserved minority communities, but they are often underfunded and understaffed. In the last few years, the largest banks have committed more than $500 million in equity investments, grants and other support to MDIs. These efforts have included assisting in building new customer-facing technology, providing operational and technical support and bringing minority banks into lines of business whose scale they wouldn’t normally be able to achieve. But despite how crucial these investments are, more is needed for MDIs to grow.

There are more ways that large banks can provide support. MDIs play a critical role in minority communities, and larger banks have the tools to support financial resilience and help close the racial wealth gap. In addition to capital, larger banks can provide business opportunities, true partnerships and extensive technological support.

Both large banks and MDIs benefit when large banks embed support for MDIs into their businesses. Investing in MDIs’ resilience by engaging them in business opportunities is a critical way to increase MDIs’ access to capital markets and allow them to better meet the credit needs of low- and moderate-income communities. For example, large banks should work with MDIs on loan syndication opportunities that allow the smaller institutions to participate in activities that benefit communities inside and …….