By Scott Anderson
While the year 2020 laid bare the lingering effects of racial and structural inequalities among Americans of color, the good news is that businesses spanning many industries are taking action to foster greater economic inclusion for people on all rungs of the economic ladder. Because of the unique role banks play as financial intermediaries between savers and borrowers, the actions the banking industry is taking right now in response to our collective recognition of racial and financial inequality will make lasting and impactful changes for the future of our country and the state of Utah.
It’s not enough to provide equal opportunity and then let nature take its course. When a minority community has been disadvantaged for many decades, in some cases hundreds of years, we need to do more than simply provide equal opportunity. We need to proactively uplift, encourage and eliminate any vestige of racism or discrimination within our organizations — and we will be better businesses for it.
In my role as chair-elect of the board of directors of the American Bankers Association, I’ve become intimately aware of the meaningful efforts that banks, large and small, are making to actively work with their communities to help close racial wealth gaps. It’s heartening to see how these accelerated activities have taken on increased urgency as a result of the events of the last year.
Making a Commitment to Strengthen Opportunities for All
The state of Utah has emerged as a champion of economic inclusion that can be replicated elsewhere. In December 2020, hundreds of Utahns, including many government, corporate and nonprofit leaders, signed the Utah Compact on Racial Equity, Diversity and Inclusion. These leaders pledged to create a society “in which race and ethnicity do not determine or limit value, opportunity and life outcomes.”
The signatories include the Utah Bankers Association as well as executives from Utah banks. We collectively committed to “foster cultures of inclusion in every aspect of our organizations and society while addressing social injustice and inequality, and condemning all forms of prejudice, bigotry and discrimination.” In addition, we endorsed five principles and actions to promote racial justice:
1. Acknowledgement and action;
2. Investment;
3. Public policies and listening;
4. Engagement; and
5. Recognizing the movement is not just a moment.
Understanding Current Data Helps Us Track Progress
If we are to make real progress closing the economic gap, it is essential to understand where we stand today and to have data and tools to measure progress or the lack thereof. Banks can be instrumental in partnering with nonprofits and research organizations to develop the needed data and to track progress.
Zions Bank commissioned the Kem C. Gardner Policy Institute, a leading research organization at the University of Utah, to develop data and information evaluating where we stand today on indicators of equity, diversity and inclusion.
The Gardner Institute report notes that, “An equitable society is one where race, ethnicity and sex do not determine opportunity and life outcomes.” The report then provides data on 17 indicators of equity, inclusiveness and diversity for each of 12 categories of race, ethnicity and sex. The indicators relate to demographics, economic status, educational attainment, health factors and housing. This data book shows our state’s current strengths and weaknesses. It is a collective look in the mirror to assess where we are and where we need to improve.
I’m excited about this data book because it will help us become a more caring and inclusive state, seeking to elevate all races, ethnicities and genders. These things are tough to measure and progress is difficult to assess. And the data is only meaningful if we use it to improve. But I believe having this status report, as a starting point, will help us make real progress.
Helping the Unbanked and Underbanked
Banks are doing more to promote economic inclusion by trying to reach the unbanked, who may be stuck in the cycle of payday lenders and high-fee check cashing services. The Cities for Financial Empowerment Fund developed standards, called “Bank On,” to certify certain basic bank deposit accounts are safe and affordable for consumers, including those who are new to banking. Today, more than 100 financial institutions offer accounts that meet the Bank On National Account Standards. Among these standards is the elimination of overdraft fees; instead, clients pay a modest monthly fee.
Bank On deposit accounts address many of the common reasons for not having a bank account cited in a 2019 FDIC survey, like not being able to meet minimum balance requirement and unpredictable fees.
The FDIC survey shows that close to 5 percent of U.S. households (approximately 12 million adults) are “unbanked,” without a checking or savings account, and almost 11 percent of U.S. households (approximately 24 million adults) are underbanked, meaning they still use some fringe financial services.
It’s important to understand that nearly 34 percent of unbanked and 45 percent of underbanked households earn less than $30,000 per year. The FDIC survey also reveals racial disparity between bank account holds. Nationally, 48 percent of black households and 42 percent of Hispanic households are unbanked or underbanked, compared to less than 14 percent of white households.
In the absence of a basic deposit account, consumers miss out on cost savings, security in their deposits and the ability to build assets and save for the future. More and more banks are offering these accounts to help consumers achieve greater financial stability.
Special Purpose Credit Programs Can Provide More Access to Capitol
Women-owned, minority-owned and veteran-owned businesses face significant hurdles in accessing credit, including reported differences in personal and business credit scores, leverage and liquidity. In fact, nearly 50 million people in the United States have no usable credit scores, making credit less accessible and more expensive for them. Additionally, the COVID-19 pandemic exacerbated financial challenges facing these businesses.
In 2020, the Office of the Comptroller of the Currency (OCC), a banking regulator, launched an important program called project REACh, which stands for Roundtable for Economic Access and Change. Its goal is to identify and reduce barriers to full, fair participation in the nation’s banking system and the economy to help expand access to credit and capital.
Among the goals of project REACh are to establish an alternative credit scoring method that regulators recognize as a safe, fair tool to assist underwriting and address structural barriers and harness market forces to create affordable financial products that allow minority groups and low-income Americans to own homes and start businesses.
Many banks are responding to the goals of project REACh. For example, Zions Bank launched a Small Business Diversity Banking Program in May. This special purpose credit program supports eligible women-owned, minority-owned and veteran-owned small businesses that may qualify for loans or lines of credit under a modified credit policy.
With new initiatives emerging from banks large and small, the industry is removing structural barriers to financial inclusion, resulting in broader participation in the economy that will help thousands of people previously left out of the system pursue their American dreams.
Expanding the Tent to Bring Opportunities to Diverse Suppliers
Beyond supporting borrowers, banks can do more to help businesses that haven’t always had a leg up or doors opened for them. One exciting trend in the banking industry is the emergence of formal supplier diversity programs. The banking industry — and, indeed, the broader business community — are finding creative ways to add more diverse businesses to their supply chains.
Utah already has a very diverse economy, and the next step is for business leaders to establish internal processes that connect traditionally underserved business owners with new opportunities — bolstering economic development.
As the banking industry’s momentum to help promote greater economic inclusion continues, I believe that the next generation of bankers will be at the forefront of moving the industry into a new and much more diverse, inclusive and equitable future. And I firmly believe that the success of the banking industry, and of society in general, depends on it.
Scott Anderson is president and CEO of Zions Bank. He will be elected chairman of the American Bankers Association Board of Directors in October 2021.