The collapses of Silicon Valley Bank and Signature Bank, followed by additional scrutiny of regional banks like First Republic and Zion Bank sent shockwaves through the economy. When banks collapse, it prompts panic and erodes trust in our financial system. And despite our deep reliance on banks to meet basic needs — like securing home and auto loans, saving for retirement, and getting paid by employers — trust in our financial institutions is already tenuous.
This is especially true for communities of color who have faced overtly racist and predatory practices by banks for decades. From the intentional redlining of communities of color which barred them from receiving loans and financial support, to more recent banking practices like hidden fees and undisclosed fines that disproportionately target communities of color and low-income communities, this mistrust isn’t unearned.
To make matters worse, the socio-economic impacts of bad banking practices on communities of color don’t disappear once new regulations are passed. For example, the 2008 financial crisis was driven by predatory lending practices that hit communities of color hardest, and these unequal impacts still linger today. Between 2009 and 2011, white wealth levels showed signs of recovery from the crisis while Black households continue to experience steep declines, exacerbating America’s stark racial wealth gap.
Banks’ sordid track record with communities of color makes the government’s intervention to prop up the failed banks’ deposits a hard pill to swallow. While it is the responsibility of the U.S. government to step in and protect our country’s economic health against major threats like the one posed by SVB and Signature Bank’s collapses, it isn’t sustainable to continue enabling bank mismanagement with the promise that the government will come in to clean up the mess. That’s what regulations are for — to prevent the mess from happening in the first place.
Banking Sector Greed: History Repeats
Risky bank behavior isn’t new. Going all the way back to the Financial Panic of 1873, America’s financial sector continues to repeat the same vicious cycle. Risky banking practices lead to consumer harm, which prompts new regulations, followed by aggressive lobbying efforts by banks to repeal those regulations, which leads to more risky behavior, more consumer harm, and more reactive regulations–and the cycle repeats again and again.
Our current set of consumer protection laws intended to stymie this predictable behavior is anchored by the Dodd-Frank Act, established in 2010 in response to the 2008 financial crisis. But despite the harrowing effect the 2008 crisis had on the economic health of communities of color, in 2018 the Trump Administration, driven by bank lobbying efforts, rolled back Dodd-Frank protections. This move lifted restrictions on smaller institutions like SVB, paving the way for the bank to engage in the risky investing behavior that prompted the Act in the first place. SVB’s CEO, Greg Becker, was among the banking interests that lobbied for the rollbacks.
When bank leaders have the ability to take on unreasonable financial risk to pad their bottom lines, we shouldn’t be surprised when they do, even at the risk of harming people and communities. That’s because banks are businesses first, and that’s by design. We can’t expect banks that are legally beholden to their shareholders to make decisions rooted in long-term, collective economic benefit. For banks like SVB, this kind of opportunistic behavior is what made it so successful.
Rebuilding Trust In Our Financial Institutions
It doesn’t inspire confidence when banks that Americans are supposed to trust with supporting a healthy and fair economy don’t have enough incentive or accountability to actually do so. That’s why we need stronger regulations to prevent profit-seeking practices that don’t adequately balance economic risk with potential harm. Strong regulations that actually succeed in protecting consumers from economic harm are the foundation from which trust in our financial system and institutions can grow.
Further, when the leadership of banks looks nothing like those they serve — whether it’s their workforce, local communities, or working Americans broadly — we can’t expect banks to make decisions that take those concerns or perspectives into account. This is not to say that diversity is the silver bullet, but we must ask ourselves why are banks so far behind when it comes to representation? And in an industry with a history of repeating the same mistakes, what does this rigid adherence to the status quo suggest about what must change going forward?
With recent “anti-woke” arguments that diversity is a distraction that harms business, it is even more important for banks to take action to diversify their leadership ranks. Evidence overwhelmingly shows that more diversity supports better decision-making. Against the backdrop of America’s longstanding racial wealth gap, diversity within our financial institutions isn’t just good for business — it’s the right thing to do if we are ever going to transform our financial system that is so clearly stacked against communities of color. It’s also an important first step for banks to rebuild the trust of communities.
Everyone should be able to own their own home, build businesses, and have access to capital to create successful futures for their families and the generations to come. But we can’t do that when the systems are set to value profits over people and the rules are rigged to deny communities of color the opportunity to thrive.
These financial shake-ups should be a wake-up call for lawmakers and regulators tasked with protecting consumers. The collapse of these banks comes at the same time politicians are fighting to dismantle the Consumer Financial Protection Bureau and lift even the most basic restrictions on banks. Rebuilding trust starts with creating an economy that works for everyone, not just a privileged few. It’s up to lawmakers to assess our current regulatory framework and make the changes necessary to protect consumers from profit-driven banks. We owe it to ourselves, and to future generations, to ensure our financial system is built on a foundation of fairness, accountability, and transparency.