'Minority' Bank Designation Has Become Meaningless

We note with interest the designation of Urban Partnership Bank as a Minority Depository Institution. According to Crain’s Chicago Business, “The $1 billion-asset bank based on Chicago's South Side
(formerly South Shore Bank) is officially a minority lender despite an ownership dominated by Wall Street giants like Goldman Sachs Group Inc. and J.P. Morgan Chase & Co.”

A Minority Depository Institution, as defined by Section 308 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), used to be a bank in which 51% or more of the common stock was owned by one or more members of the following groups: Black American, Asian American, Hispanic American, or Native American.

The threshold now for MDI designation is a bank that meets one or more of the following standards:
  • 1.       51% or more of the common stock was owned by one or more members of the following groups: Black American, Asian American, Hispanic American, or Native American.
  • 2.       51% or more of the members of the Board of Directors are one or more members of the following groups: Black American, Asian American, Hispanic American, or Native American and the community the banks serves is primarily minority.
The FDIC expanded the MDI definitions because is says it found the old definition “ambiguous.” Now a bank that does not meet the ownership test can be designated an MDI if 51% or more of the directors on the board are members of those minority groups and the community the banks serves is primarily minority. This is how Urban Partnership Bank was able to obtain recognition as an MDI.

This means that any institution, no matter how discriminatory, can obtain this designation. The MDI designation is valuable because banking regulators use deposits in minority banks made by non-minority banks as evidence that the non-minority bank is not breaking the law by discriminating against racial minorities and that it (the non-minority bank) is meeting community credit needs.

The MDI designation originally helped Black-owned banks, whose historical significance was clear: they were created at a time when discrimination against Black people was legal in the US. They served as the only financial service providers to the community. Black banks do not now have the same level of significance to the Black or minority community today. They are too small to serve the community in any meaningful way. For example, they cannot serve as a line of defense against predatory lending. The result: banks like Wells Fargo are free to target wealthy black communities for predatory loans, in a nakedly discriminatory (and ultimately successful) campaign to strip wealth out of the Black community.

According to a June 12, 2012 article in the Washington Post, one Wells Fargo loan officer, “in sworn court testimony..described watching loan officers comb through heavily African American areas such as Baltimore and Prince George’s County, forging relationships with churches and community groups to sell their members (predatory) mortgages.” This same loan officer “processed loans for (Black) homeowners with sterling credit ratings with higher interest rates than they needed to pay.”

Of course, some will claim that the actions of a few bigoted individuals cannot mark an entire institution as racist. We disagree, and refer to the clear double standard concerning these matters, evidenced by the treatment of ACORN, after a few individuals at that non profit made mistakes.

What’s specifically relevant in this case is that Goldman Sachs, one of the owners of this newly designated “minority bank,” has a history of discriminatory behavior. The firm's bigoted attitude toward Blacks and women is described, in great detail, by author by William D. Cohan in Money and Power: How Goldman Sachs Came to Rule the World, a book released in 2011.

Cohan recounts the case of James. E. Cofield, Jr, an African American Stanford MBA who sued Goldman for discrimination in 1972. On December 6, 1987, a female employee filed another in a series of discrimination lawsuits claiming Goldman had "a hostile working environment in which women were demeaned." In March, 2010, yet another female employee filed a discrimination lawsuit. In September, 2010, three female former employees filed a class action lawsuit stating that Goldman "systematically discriminates against women in pay and promotion." 

This discriminatory behaviour appears to be ongoing. On Sunday, June 2, 2013, an article on Salon.com described a “series of racist and sexist ‘tips’ to succeeding at” Goldman Sachs. (http://www.salon.com/2013/06/02/wall_street_insiders_advice_for_interns_sleep_with_your_female_colleagues_then_brag_about_it/)

Goldman also has a history of manipulating financial data in order to support unethical business activities designed to maximize short term profit. In 2003, Goldman Sachs admitted that it had violated anti-fraud laws. In 2010, according to the New York Times, Goldman paid “$550 million to settle federal claims that it misled investors.” (http://www.nytimes.com/2010/07/16/business/16goldman.html?_r=0)

As part of that settlement, the firm “agreed to a judicial order barring it from committing intentional fraud in the future.”  As an investor in an institution that has received designation as a minority depository institution without actually being one, some may suggest that Goldman has violated that order.

At any case, Urban Partnership Bank’s designation eliminates an honest and ethical explanation of the “Minority Depository Institution” designation. As an analyst who has been producing statistical reports on women and minority banks for 30 years, this change also affects my ability to derive meaningful insights from bank performance data pre definition change and after the MDI designation change. It makes any long term statistical analysis meaningless, as I noted in the Minority BankMonitor, our annual review of the social and financial performance of minority banks.

More importantly, this change removes any real social meaning from the MDI status designation.
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