By Danielle Beavers and Orson Aguilar
The agencies that regulate our nation’s financial institutions have a diversity problem. Our latest analysis of the agencies shows they need to get serious about fixing it.
For too long, diversity has been regarded as largely a “politically correct” feel-good initiative in the financial sector — something that might be nice to do, but that is of little consequence to the larger missions of both financial businesses and the regulatory entities that oversee them.
The financial crisis of 2008 taught us better. We saw communities of color hit first and worst. We also saw that the financial decision-makers in the period leading up to the crisis, including both banking executives and leaders of the regulatory agencies, were largely white. They simply missed the signals from communities of color about mounting problems with high-cost mortgages and other indicators.
Congress understood the linkages between a diverse financial sector and better outcomes for consumers of color. The Dodd-Frank Act of 2010 required eight federal agencies — including the bank, credit union and securities regulators — and the 12 Federal Reserve banks to establish an Office of Minority and Women Inclusion. Congress created the OMWIs to leverage diversity and help reform the financial sector.
In addition to monitoring the private financial sector’s diversity, the OMWIs are also cleaning up shop internally, working to diversify agencies’ staff and contracting with outside vendors. Unfortunately, racial disparities persist, particularly in the most critical positions.
When we examined the 2014 diversity data provided by the eight federal agencies — including the Federal Reserve Board, Federal Deposit Insurance Corp. and Securities and Exchange Commission — we found that overall 33.5% of their combined workforce were people of color. That’s roughly consistent with demographics of the U.S. civilian and financial sector labor forces.
But as you go up the organization food chain, diversity declines sharply. In upper-level management, African-Americans, Asian-Americans and Latinos are seriously underrepresented. Collectively, people of color represent just 17.76% of executive management roles in these agencies.
We found a similar pattern in jobs deemed “mission critical” — attorneys, economists, examiners and the like. These positions not only play fundamental roles in an agency’s work, but they also form the pipeline to executive roles, making their diversity critical. Once again, people of color were often under-represented, sometimes shockingly so. Latinos, for example, make up 16.4% of the U.S. workforce, but only 3.49% of the mission-critical workforce in these agencies.
These agencies, like other large organizations, buy lots of goods and services from outside vendors. Here, too, the diversity results were disappointing. On average, the agencies spent 17.61% of their total procurement budgets with minority-owned vendors. Such spending also varied massively from agency to agency. For example, the Office of the Comptroller of the Currency spent 36% of its procurement budget with minority-owned vendors, compared to just 2.6% at the National Credit Union Administration.
Asian-American-owned businesses received the majority of supplier diversity dollars (9.25%), while Latino and African-American-owned businesses received smaller shares — 5.25% and 3.14%, respectively. We’re clearly far from having a financial regulatory system that looks like America.
Still, we’ve seen hopeful signs.
For one, Congress has started paying more attention, with members voicing their concerns. In May, over 120 members of Congress submitted a letter calling for more diversity in the Federal Reserve System. In late June, a record number of senators stressed the importance of agency diversity during the Fed’s semiannual monetary policy briefing. The congressional Black, Hispanic and Asian and Pacific Islander caucuses banded together and called on multiple agency leaders to adopt recommendations on their internal diversity practices.
Congress is off to a good start and should keep paying attention. Simply reacting to controversies isn’t enough. Our elected leaders should remember that this lack of diversity isn’t limited to any one agency or group of agencies, but is endemic across the government, and they should use their power to push government to look more like America.
The agencies have started to show some signs of progress. Last year, the Consumer Financial Protection Bureau revamped its performance review process to eliminate racial bias, and now it is now conducting employee feedback sessions.
All the financial regulatory agencies should start to be more proactive, including in their data collection and in taking action on the data they gather. Congress and advocates need to hold regulators accountable and ensure they take the steps to build a regulatory structure that looks like America.