Panel: The Unequal Costs of Banking in Segregated America
(Housing, Community Development, and Urban Policy)

Saturday, November 10, 2018: 1:30 PM-3:00 PM
8212 - Lobby Level (Marriott Wardman Park)

*Names in bold indicate Presenter

Panel Chairs:  Keith Ernst, Federal Deposit Insurance Corporation
Discussants:  James Carr, Insight Community Economic Development

Racialized Costs of Banking in Segregated America: Evidence from Banks’ Entry-Level Checking Accounts
Jacob William Faber, New York University and Terri Friedline, Kansas University

Holc “Redlining” Maps: The Persistent Structure of Segregation and Economic Inequality
Bruce C. Mitchell, Juan Franco and Jason Richardson, National Community Reinvestment Coalition

The Color of Money: Black Banks and the Racial Wealth Gap
Mehrsa Baradaran, University of Georgia

A growing body of evidence demonstrates that America’s racial geography shapes access to financial services (e.g., banking) with profound implications for our understanding of the mechanisms connecting segregation to economic vulnerability. The “day to day” practices and policies of traditional banking institutions are central to this dynamic of institutional marginalization, as banking institutions provide a gateway for participation in today’s economy and are essential for individuals seeking more complex tools for wealth accumulation. This panel convenes researchers whose data and findings reveal the ways banks’ policies and practices contribute to institutional marginalization and shape economic participation.

The panel's first paper disrupts the perception that banks are juxtaposed from and superior to payday lenders by investigating their relationship along a shared, interdependent continuum of services. Through analyses of an original longitudinal geospatial dataset in five diverse metropolitan statistical areas, the author establishes that banks and payday lenders engage in long-running financial relationships that contribute to differential spatial patterns of openings and closings. These findings offer an inventive perspective into supply and demand mechanisms within neighborhoods. The second paper unveils new evidence on the racialized costs of traditional banking by investigating banks' entry-level checking accounts. Entry-level checking accounts are understudied despite being one of the most widely used banking products. Leveraging novel survey data from a stratified random sample of banks, the authors reveal that banks charge more to open and maintain entry-level checking accounts in neighborhoods and cities with larger black and Latinx populations, net controls for demographic characteristics and the presence of competing financial services. Moreover, bank tellers wield discretionary power in shaping these costs. The third paper uses Home Owners’ Loan Corporation (HOLC) redlining maps to analyze the relationship between neighborhoods’ historic ratings and their present-day social and economic conditions. Interpreting the HOLC maps as evidence of loan officers' discretionary evaluations of mortgage lending risk, the authors find that the lowest ratings disproportionately applied to communities of color have served to deny access to capital that could have been used to improve residents' housing and economic opportunity. While black and minority-owned banks are sometimes believed capable of alleviating the dynamics of institutional marginalization given their commitments to serving communities of color, the final paper challenges this belief by situating these banks within contexts of the broader financial system and segregated economy. The author concludes that wide scale system change is needed to effectively advance black and brown communities' wealth accumulation.

The papers in this panel take new vantage points in their investigations of financial services and reveal the unequal costs of banking in segregated America. The findings presented in these papers can be used to generate innovative solutions for reversing policies and practices that contribute to institutional marginalization. Otherwise, as long as financial services remain essential for participating in the economy, the racialized costs of banking will continue to undermine full and dignified participation for communities of color.