Scholar argues that U.S. financial regulatory agencies must reflect the people they serve.
Decision-makers matter. But only 10 Black Americans have ever served as top financial regulators over the course of U.S. history.
This staggering absence of Black Americans in U.S. financial regulatory agencies surfaced last summer when Chris Brummer, a professor at Georgetown University Law Center, released a working paper issued by the Brookings Institution. Brummer more recently offered additional data at a keynote speech commemorating Black History Month at the U.S. Securities and Exchange Commission (SEC).
Prior to Brummer’s path-breaking research, the systemic absence of Black Americans in policy leadership positions at financial regulatory agencies remained undocumented and largely unquestioned. In his speech, Brummer highlighted not only the absence of nominated Black appointees, but also the absence of Black Americans serving in senior director roles at the SEC and Commodity Futures Trading Commission (CFTC).
But who makes the rules matters for the economic well-being of all Americans, especially Black Americans, Brummer argues. Because both political parties have largely failed to nominate and hire Black Americans to positions of power, Brummer explains, financial regulators have been making rules without the input of members from the community that the financial system has most often and continues to fail.
Systemic racial inequalities have left Black Americans trailing their white counterparts on every economic measure. Black Americans make less money, are less likely to own homes, and live shorter lives than white Americans. Compared to white children, Black children are three times more likely to live in poverty, and white families’ median wealth is more than ten times that of Black families. Amid the current recession—one which is the most unequal in U.S. history—those gaps are only worsening.
In times of economic distress, financial regulators often help decide who receives taxpayer-backed financial assistance. Even in normal times, Brummer argues, financial regulators make critical decisions that “can have outsized impacts for people of color.”
Financial regulatory agencies create the rules for the U.S. financial system and can determine how and whether to address the racial wealth and income inequality gaps. The leaders of these agencies determine how capital is allocated and monitor banks and corporations.
Brummer emphasizes that the rules and regulations that financial regulators create directly impact several systemic problems in society. Financial regulators also implement laws, such as the Equal Credit Opportunity Act and Community Reinvestment Act, intended to correct for historical injustices that have targeted Black Americans.
Because of their “lived experience as the group for whom the financial system has failed,” Brummer argues, Black regulatory experts and leaders may know why some policies do not work and have ideas for how to fix them.
With this in mind, Brummer investigated the historical representation and status of Black American participation in the policy leadership—political appointees and their immediate hires—of financial regulatory agencies. As of July 2020, when Brummer collected his data, only 3 percent of all U.S. Senate-confirmed leaders of financial regulatory agencies had been Black.
No Black commissioners have ever served on the SEC or the CFTC. The Federal Deposit Insurance Corporation has never had a Black chair. And across all financial agencies, political appointees have generally failed to hire Black senior policy staff.
Brummer considers several possible explanations for this bipartisan failure. One common argument—that Black Americans lack the academic or professional qualifications needed for the top financial regulatory positions—is implausible. His data indicate that, since 1985, Black appointees have had more education than their white counterparts, not less.
Brummer offers a more plausible partial explanation: Working on Wall Street or for Big Tech could disqualify potential nominees or hires as politically undesirable, which could have a disproportionate impact on Black candidates. Because of historic inequality, credentialed potential Black nominees are more likely to have had higher student debt or family obligations that necessitated taking higher paying corporate jobs.
Brummer also discusses how various cognitive biases could lead to “flawed, and ultimately racially biased decision-making.” He explains how outsider bias, for example, may dissuade senators from supporting nominees who are outside their known social and professional circles, as is the case of many Black American candidates.
Ultimately, however, Brummer emphasizes the need for further research. “At a minimum” the government should gather data on the makeup of U.S. financial regulatory agencies—the lack of which hinders more thorough investigations.
Currently, no rules require that agencies keep demographic data on political appointees and their staffers. In the wake of the 2008 financial crisis, in an effort to increase minority representation at regulatory agencies, the U.S. Congress required federal agencies to create an office to oversee all agency matters “relating to diversity in management, employment, and business activities.” Congress did not, however, call for quotas, nor did it authorize diversity offices to levy penalties or enforce civil rights laws.
Members of the Senate have a distinctive opportunity to promote diverse leadership. The President nominates “members of regulatory commissions and agencies,” while the Senate provides “its advice and consent in voting to” confirm the nominee. In some circumstances, however, the Senate takes the lead in identifying potential nominees, Brummer asserts.
Some regulatory agencies, such as the SEC and CFTC, must by statute limit the number of political appointees of any one party. When a commissioner must be nominated who is not a member of the President’s party, for example, Senate leaders have the opportunity to suggest or sponsor names for appointments to the President. Yet, according to Brummer’s data, the Senate has acted only once to do so for a Black American.
President Joseph R. Biden now finds himself with opportunities to nominate Black financial regulators. As a candidate, Biden committed to promote diverse agency leadership shortly after Brummer posted his paper. In fact, Biden named Brummer to the agency review team for the U.S. Department of the Treasury. Nearly half of Biden’s transition staff were people of color, and he has nominated the most racially diverse cabinet in U.S. history. President Biden, however, has yet to name a Black American to head a financial regulatory agency.
In an Inauguration Day executive order, President Biden directed his Administration to take several steps to address racial equity, including instructing agencies to “consult with members of communities that have been historically underrepresented in the Federal Government and underserved by, or subject to discrimination in, Federal policies and programs.” President Biden has taken other actions related to racial equity, and, when it comes to the leadership of financial regulatory agencies, Brummer’s work shows that the President has the opportunity to make historic strides. Whether the President does so will become evident as nominations and staffing unfold.