Closing the wealth gap has been the focus of community, philanthropy and many journalists in the country as a 21st century priority. The wealth gap proves just how inequitable society is, and highlights the prize bestowed on those who are white and privileged in this country.
When we talk about the wealth gap, we often quickly turn to solutions like training, marketing and focusing on women- and minority-owned business enterprises (WMBEs) to reach communities of color. These solutions are a soft start but hardly a systemic solution.
Part of the problem is when we talk about the wealth gap, we often don’t talk about how we got here. Every generation of Black and brown families attempts to build wealth, yet are systematically excluded from the systems that build that wealth.
For example, in Boston, the average white family has around $250,000 dollars in wealth vs $8 dollars of Black wealth, according to a 2015 Federal Reserve study. This statistic speaks to the wealth white people generate through home ownership. It also reflects the inequities within real estate and banking, two industries fraught with historic and current racial exclusion. This means the most common form of wealth creation remains out of reach for many people of color.
How did this happen? Redlining.
Part of a Sordid History
Redlining can be defined as a discriminatory practice that consists of the systematic denial of services such as mortgages, insurance loans, and other financial services to residents of certain areas, based on their race or ethnicity.
The Federal Housing Administration began redlining at the very beginning of its operations in 1934. FHA staff concluded that no loan could be economically sound if the property was located in a neighborhood that was or could become populated by Black people, as property values might decline over the life of the 15- to 20-year loans they were attempting to standardize. Yes, to put it plainly, redlining was the government enshrining protections for the value of white-owned property as integration grew in the country.
Redlining is an example of how governments and institutions create generational privilege for the majority class by excluding growing diverse populations. While this may seem like an archaic way for banks to conduct business, this practice is still found today.
Recently, the Department of Justice announced a $9 million settlement with Rode Island-based Washington Trust Bank for redlining in communities just across the border from Massachusetts. The reason? According to The Guardian, “Since the company was founded in 1800 in Rhode Island, the bank has never offered its home loan services at a branch location in a majority-Black or Latino neighborhood throughout the state, including in the state capital of Providence, where the vast majority of the state’s Black and Latino population live.”
It’s worth noting that, in the settlement, Washington Trust denied any wrongdoing.
$9M Penalty and More Oversight
While $9 million may not seem like a high cost for a $7 billion-asset bank, this fine is still encouraging to see. It puts the spotlight on how this bank actively played a part in denying Black and brown families a chance at wealth creation.
Another part of the settlement will have the bank opening two branches in Black and Latino neighborhoods. Hopefully, Washington Trust will work through their cultural bias problems before they come into these neighborhoods, which could cause additional reputational risks for the bank.
The bank also has made a separate agreement with the Rhode Island state treasurer’s office to be monitored on 10 action items, including diversifying the make-up of its board and executive leadership team.
I have heard people ask, “Why can’t Black and brown families pull themselves up by their bootstraps?” The answer is simple: Because for over 300 years banks have traditionally been behaving like Washington Trust. Let’s hope the DOJ continues to hold banks accountable to stop redlining and encourage banks to see that their actual growth lives in the 50 percent of underbanked Black and brown families, which Washington Trust and others have chosen to ignore.
As U.S. Attorney Zachary Cunha said in a statement, “Everyone who pursues the American dream has the right to expect to be treated equally and with dignity, regardless of their race, their background, or zip code. When communities are denied access to fair lending, families are denied the opportunity to build stability and financial success.”
Malia Lazu is a lecturer in the Technological Innovation, Entrepreneurship and Strategic Management Group at the MIT Sloan School of Management, CEO of The Lazu Group and former Eastern Massachusetts regional president and chief experience and culture officer at Berkshire Bank.