By Ellen Ryan
Recent headlines tell the story.“It’s official: The US is becoming a minority-majority nation.”
“Experts: Coming demographic shift will strengthen US culture.”
Contrast that with the banking industry. Nonminority-owned banks hold 99 percent of all US banking assets. Management of the financial services industry remains at 80 to 90 percent white. And ICBA and the FDIC recognize just 157 minority-owned community banks across America, out of 5,870 total.
So when minority bankers attend a standard meeting or convention, their presence is obvious. “I’m very self-conscious about it,” says B. Doyle Mitchell Jr., president and CEO of the $390 million-asset Industrial Bank in Washington, D.C. “When you have 1,500 people in the room and three blacks, you know you’re one of only three.”
In areas that are more diverse now, you’ve got to decide if you’re willing to hire someone of another color even if they might not be your first choice.
—B. Doyle Mitchell Jr., Industrial Bank
“I’m used to it,” adds Suchitra Padmanabhan, president of the $31 million-asset CBW Bank in Weir, Kan.—the number-two community bank in its asset class (see page 39). As an Indian-American woman, she is a minority in the banking world twice over. “I see a really long line to the men’s room and none at the women’s,” she says. “Think of the positive things.”
Every challenge has its upside. But as the country grows ethnically more diverse—even in some rural areas—banking will need to grow more diverse too. And the bankers we talked to have some ideas about how to do it.
The facts and figures
The FDIC defines a minority bank as any depository institution where one or more African-American, Asian-American, Hispanic or Native American people own at least 51 percent of the voting stock. An institution is also considered minority if most of the board is minority and the communities served are predominately minority.
Minority banks are as diverse in size as the rest of the community banking world. Those 157 minority-owned banks range in asset size from $24 million to $33 billion. They have names as all-encompassing as American Plus Bank and as specific as Cathay Bank, State Bank of India and Native American Bank. A few have just one location; International Bank of Commerce, in Texas and Oklahoma, has more than 200.
Minority banks hold almost 7 percent of community banks’ assets. Like other community banks, they struggle with regulatory burdens, low interest rates, rising technology costs, and keeping a high quality of commercial loans as well as a profit in deposit accounts.
What sets them apart is a clientele that checks the boxes of one or more minority categories: racial or ethnic minority, immigrant, poor English skills, a substantial unbanked or underbanked population, less income and less education than average.
Here’s the result: smaller loans and deposit balances. Undiversified loans and deposit portfolios. Difficulty raising capital. Given all that, greater regulatory scrutiny. A limited universe of clients. A tougher time attracting and keeping qualified staff.
“Since African-Americans don’t have the wealth or the income that our counterparts have, we have a higher past-due ratio, and our asset quality might not be as good,” Mitchell explains. “Some businesses may not have the capital or the resources that other business owners have.”
He’s confident in his bank’s stability, though. “[Regulators] tell us all the time that our problem-asset level tends to be higher,” he says. “We’ve shown that we can manage at that level.”
“A lot of regulation now is about concentration of commercial credit,” notes Jill Sung, president and CEO of New York’s $250 million-asset Abacus Federal Savings Bank. “If we’re serving certain populations that have specific needs for that kind of credit, the regulators shouldn’t be worried about ‘Oh, you shouldn’t have more than 10 percent of that type of loan.’”
Should community banks reflect their local demographics? Minority bankers agree that they should. “If you go into Small Town USA and the population is 8,000 and 97 percent white, it’s more than appropriate for the leadership to be white,” says Mitchell, speaking for most.
But America isn’t as monolithic as it looks on a map. Consider the minority labor on Iowa farms, says William Farrow, president and CEO of Chicago’s Urban Partnership Bank, with $492 million in assets. “This country has a much higher dispersion of minorities” than the stereotype, he notes. “Not everyone is concentrated in urban areas.”
The financial sector’s slowness to change will affect the bottom line if it hasn’t already, bankers and others say. Study after study has shown that diversity boosts the bottom line. “It’s Psychology 101,” says Mitchell. “Similarity breeds familiarity; familiarity breeds comfort. If you don’t understand someone, you won’t be as comfortable lending money to that individual.”
And vice versa: The woman in a sari who walks into a marble-columned bank and sees only graduate-degreed Caucasians in suits may disappear, several bankers say, never asking you about a loan for that profitable dry-cleaning expansion.
“Diversity creates better business intelligence for your bank,” says Guillermo Diaz-Rousselot, president and CEO of Miami’s $500 million-asset Continental National Bank, whose staff, top to bottom, is roughly two-to-one women and of varied nationalities. “Different cultures enrich the model and help you understand the nuances of your customers.”
Both Industrial Bank and CBW Bank hire Spanish speakers because “that is very good for business,” adds Padmanabhan. Abacus Federal’s staff, which is largely Chinese-American, includes other Asian-Americans, a Latino chief financial officer and a Russian-American underwriter; Sung finds that heterogeneity leads to greater creativity.
Different cultures enrich the model and help you understand the nuances of your customers.
—Guillermo Diaz-Rousselot, Continental National Bank
So is the problem intent? Not knowing where to look? That minority staff members don’t stay?
Many minority bankers, like many community bankers generally, came up through the family business. Business mentors often include relatives.
Industry outsiders include Padmanabhan and Diaz-Rousselot. They agree that mentorship programs increase the number of minority bankers in the hiring pipeline. However, few community banks seem to have such programs. Farrow knows how to fix that.
In 2013, the Federal Reserve Bank, in partnership with Urban Partnership Bank and several Chicago-area regional banks and investment firms, formed the Financial Services Pipeline Initiative with two goals: to increase the number of Latinos and African-Americans on staff and improve the sector’s overall cultural competency. Eventually, the three-year initiative grew to 16 members, including big banks and a Federal Home Loan Bank.
The group found multiple firms compete to hire the few minorities earning financial degrees, and as Sung says, “Once we hire and train them, they leave.” So, adds Farrow, “let’s get more minority kids interested in concepts of money and give them exposure to financial careers.”
Community banks interested in a more diverse workforce should therefore direct their attention at building educational links with minority schools.
Farrow says the “aha” moment for many majority firms that participated in the Financial Services Pipeline Initiative was “first, instead of just trading talent, let’s broaden the base. Second, most minorities don’t grow up in families talking about what they read in the Wall Street Journal. You’ve got to get them [educated] as early as possible so they’re even aware of financial careers as a possibility.”
You’ve got to get [minorities educated] as early as possible so they’re even aware of financial careers as a possibility.
—William Farrow, Urban Partnership Bank
If you’re ready to recruit now, use internships and part-time work as conduits, says Farrow. Sung also recommends community colleges. And look for skills, not experience: Paralegal and IT workers’ skills can transfer, she notes, and a Starbucks barista who gives great customer service might make a fine teller.
Employee diversity has to be a conscious decision. “In areas that are more diverse now, you’ve got to decide if you’re willing to hire someone of another color even if they might not be your first choice,” says Mitchell. “Is it someone that you can work with because you know you need diversity?”
He envisions a strategic plan working in this way: “‘Let’s do a little something different. I know this African-American down at Bank of America—he might want to come work for a community bank.’”
Impetus has to come from the board and senior management, says Diaz-Rousselot: “Make it official policy, from the top. Everyone has to buy in to make it work.”
Once you’ve secured a rising star, a mentoring program is another way to ensure he or she—minority or otherwise—feels supported and valued. Just as customers feel comfortable talking with someone “like them,” your new minority hire will probably feel most comfortable asking questions of someone more senior who’s more like them.
And don’t stop at one minority employee. “It’s very hard for that person to acclimate, and all the pressure’s on that one person,” says Sung.
A lot of people taking a little action can have a major effect, minority bankers say, whether in one community or throughout the country. “It becomes a problem that solves itself,” says Farrow. Hire and mentor a few minority employees, and “next time, they’ll want to mentor a nonminority and a minority. It becomes a series of improvements”—which leads to a stronger base and more profitable banks.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 says regulated financial institutions are “strongly encouraged” to disclose their diversity policies and practices online and submit self-assessments to their primary regulator. Each agency has developed standards for assessing these policies and practices.
“The information may be used by the agencies to monitor diversity and inclusion trends and identify leading policies and practices in the financial services industry,” according to the FDIC. A spokeswoman said that voluntary disclosures, which began in 2016, are by definition incomplete, and it’s too early for the agency to have reached any conclusions.
No federal law requires banks to post their staffs’ racial and gender makeup, says Rhonda Thomas-Whitley, ICBA assistant vice president, regulatory counsel. Banks may qualify for certain designations—as a minority depository institution, for example, or a community development financial institution—whose legal definitions are publicly available.
Thomas-Whitley mentions regulatory burdens in the Home Mortgage Disclosure Act and Community Reinvestment Act meant to ensure fair lending practices, but those are aimed at consumers, not at bank staffs and governance.
The Trump administration has begun scaling back Dodd-Frank and a host of regulations. There is no guarantee how long any will remain.
Ellen Ryan is a writer in Maryland.