What History Can Teach Banks About Making Change

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Last year, amid protests over the murder of George Floyd, financial firms pledged billions of dollars to programs aimed at racial equity, including efforts to diversify their hiring and invest in Black businesses. And last month, Bank of America, BlackRock and Goldman Sachs were among hundreds of businesses and executives who signed a public letter opposing laws that would restrict voting across the country, especially for minority voters.

But in their recent commitments to racial justice, financial institutions have mostly mimicked others instead of pulling on the unique levers of power that they control.

Banks determine, manage and mitigate the risk of lending. Along with asset managers, they can stoke a market for risky debts or shun borrowers and projects they deem undesirable.

This power has been harnessed by social movements in the past, though not often.

During the civil rights movement, for example, extraordinary efforts by the National Association for the Advancement of Colored People pushed Childs Securities, a dealer of government bonds, to boycott Alabama’s municipal bonds in 1965. Roy Wilkins, the executive director of the N.A.A.C.P. at the time, said this “type of economic sanction” might trigger “long-overdue reforms.”

Civil rights activists rejected the suggestion that financiers were neutral intermediaries between abstract borrowers and investors. By purchasing the bonds of Southern states bent on segregation and underwriting Jim Crow infrastructure, the nation’s banks not only had buttressed these regimes, they had done so despite major judicial watersheds, most notably Brown v. Board of Education in 1954.

A few months before Childs Securities began its boycott, civil rights leaders released statements to the press that denounced both “the brutal discrimination visited by Mississippi upon its Negro citizens” and the potential for the bond market to bolster inequality through the discriminatory use of borrowed funds. Bankers could be on the right side of history, they argued, by undermining segregation through the refusal to buy, sell or invest in the bonds of offending parts of the South.

In December 1964, Wilkins wrote to financial institutions urging them to jettison more than $32 million worth of Mississippi’s municipal bonds. He underscored the immorality of funding a state that had effectively condoned racial violence, alluding to the “Freedom Summer” murders of the activists James Chaney, Andrew Goodman and Michael Schwerner.

Wilkins also stressed the economic risk of holding debt like Mississippi’s. The racial subordination of nearly half the state’s population constituted “an endless economic dead weight which is bound to reduce the fiscal attractiveness of the state’s securities quite apart from the moral issue,” he wrote. Wilkins implied that, by excluding Black Mississippians from economic opportunities, the state would have to devote greater expenditures toward welfare, policing and other areas that might otherwise be used to promote economic growth that would safeguard bondholders’ investments.

Behind these statements was a strategy to shift large capital holders that played key roles in the municipal bond market, nudging investment and commercial banks, pension funds and insurers to assist a campaign that sought to cut off capital investment from the Jim Crow South.

Thus, before Donald Barnes, an executive vice president of Childs Securities, wrote a letter in 1965 to Gov. George Wallace questioning Alabama’s creditworthiness, civil rights activists sought to harness the power of finance in aid of the movement. Childs Securities’ decision to boycott Alabama came after the Rev. Dr. Martin Luther King Jr.’s call to boycott the state, and after dockworkers along the West Coast refused to handle Alabama-made products.

The lessons are twofold. First, it took social movements to push banks to divest from the South. Business was not the central agent of change in the fight for racial, economic and social justice, but in some cases it was an effective tool.

The second lesson is that businesses that joined the cause worked against industry peers, such as the analyst at Moody’s who said in 1965 that it was “not sympathetic with the civil rights movement.” The financiers at Childs Securities decided to stand with the N.A.A.C.P. and against Alabama, but also against their syndicate partners, many of whom did not agree with what one Boston banker called the “ill-conceived and immature” decision to publicly declare and act on their opposition to Alabama’s actions. Childs Securities battled on multiple fronts, including within a sector that put profits ahead of social issues.

These efforts have threads in common with contemporary social movements. In April, more than 140 racial justice leaders published an open letter that asked large asset managers to use their shareholder voting power to advance racial equity, including by opposing all-white boards and supporting more visibility into corporate political spending.

“You share unique power to shape corporate behavior and to change the business-as-usual practices that uphold white supremacy at the foundation of our economy,” they wrote.

One also hears echoes of the insistence by 1960s bankers that their jobs did not include judging political leaders who used credit to buttress antidemocratic policies. A memo from the U.S. Chamber of Commerce about its donations to lawmakers who challenged the result of the 2020 presidential election, written in the wake of the Capitol riot, stated that the group does “not believe it is appropriate to judge members of Congress solely based on their votes on the electoral certification.”

If the tactics and strategies of the civil rights movement reverberate in the present, so do the ethical challenges posed to American financial firms.

The imprisonment of millions of Americans, especially Black Americans, has been described as the new Jim Crow. And the financial industry has helped underwrite the boom in private prisons, county detention centers and county jails.

Activists applauded in 2019 when several major banks stopped financing private prison companies. But these commitments have limits.

Barclays, which declared in a memo to staff in June that “Black lives matter,” was among the banks that said they would stop funding private prisons. Recently, it agreed to help the State of Alabama raise more than $600 million to fund the construction of two prisons by CoreCivic, a private prison firm. Barclays argued that because the state would run the prisons and the bank would be underwriting the deal, not financing it, it had upheld its commitment.

After activist organizations urged banks and investors not to buy the bonds and the American Sustainable Business Council said it would rescind Barclays’ membership, the bank pulled out of the deal.

Similarly, groups like the Action Center on Race and the Economy criticize financial institutions for helping cities and counties issue bonds to pay for police misconduct settlements and judgments.

Celebrating Juneteenth and recruiting more Black bankers is one thing. It is quite another for financial firms to use their unique power to actively undermine the systems that perpetuate racial inequality. If they were mostly passive during the civil rights movement, what will the nation’s major financial institutions, in the face of continuing demands for racial, social and economic justice, do differently this time?

Destin Jenkins is an assistant professor at the University of Chicago and the author of “The Bonds of Inequality: Debt and the Making of the American City.”

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