Last year, a part of Wall Street called “structured finance” funded nearly a half-trillion dollars of loans to consumers and businesses across the country. As the Structured Finance Association, the Washington trade association that represents this industry before policymakers and the public, we have plenty on our plate.
Core among our priorities is striking the right balance between enhancing safeguards that protect the financial system and allowing a dynamic financial system to serve the economy. We support policy initiatives that we know, and that data show, are good for the safety of our financial system and beneficial to the U.S. economy. But as the CEO of this trade group, my personal top priority for 2020 enhances our mission in another, arguably more important way.
Given the not-so-distant history of the U.S. economy — where extremely poor underwriting, plus a series of surprising mistakes, led to the worst financial crisis since the Great Depression — I am often asked, “What happened, and how do we prevent it from happening again?” After a decade of personal reflection (side note: I lost my job during the financial crisis, and that experience was formative to much of my worldview) my answer to that question — and my highest priority initiative in 2020 — is this: to have more women and people of color as leaders in our industry. Finance remains insufficiently diverse, and we have to change that fact.
While some progress has been achieved in recent years, we need to do more — much more — and we need to do it faster. And I believe this matters on a very fundamental level. I believe, and research suggests, that a more diverse financial services industry is one that will serve more people better, through the economic cycle, and that this is vital for underserved communities and the entire nation in both good times and bad.
If we succeed in building diverse leadership in the finance industry, the industry’s book of business will grow faster. But, more importantly, its quality will be stronger and safer. Because diversity in the way we think and approach markets — which would be enhanced by a more diverse workforce — will provide much needed context as well as insights that white male decision makers who all look like me could miss.
Consider a few hard facts. Most notable, communities that are the first to be on the receiving end of predatory lending in all areas of finance are, by and large, communities of color. And these communities then get hit the hardest in an economic downturn. This happens in every economic cycle, and it has to stop.
We need to recognize that we likely would have avoided many of these mistakes if these same communities had better representation in boardrooms on Wall Street. Put another way: What if more racial and ethnic diversity is a key ingredient in preventing the next financial crisis? I don’t think this is an outrageous claim at all.
In my lifetime, some important progress has been made in diversity and inclusion at major corporations — by and for women and people of color. And yet also in my lifetime, redlining of minority neighborhoods wasn’t just an unofficial racist lending policy — it was formally sanctioned by some government mortgage programs as recently as the 1970s. Communities of color were rejected for loans, then preyed upon. And when the music stopped, these communities — again — paid the harshest price. That wasn’t a hundred years ago. That happened since I went to college.
If we are to make real progress in fostering policies that will benefit, not exclude, diverse neighborhoods, it stands to reason that we need more decision makers within organizations who are themselves diverse. Moreover, even with the best of intentions in trying to extend credit to underserved communities, non-diverse market leaders will miss opportunities that a more diverse and inclusive workforce wouldn’t.
One positive trend, and a trend that we can gain some encouragement from, is that our industry is gradually making progress in gender diversity. With programs like the Structured Finance Association’s Women in Securitization initiative, among many other similar groups, Wall Street is beginning to create some important institutional support helping women thrive in an industry that has long had an earned reputation for misogyny. This pervasive sexism is not only wrong, but it’s just plain dumb. Women represent more than half of the consumer base, and it is, again, logical that if an industry wants to expand its market, it needs to understand it — not just through research, but through real change. Bringing the target audience in on the marketing approach is just common sense.
All of this is one reason why, at SFA’s upcoming SFVegas 2020 conference, we have packed our program with opportunities for the industry to hear a more diverse set of speakers than ever before. As a white male, I have come to understand that meaningful and productive conversations about gender and race require deep self-examination and even some vulnerability. But I’m also greatly looking forward to walking this path, and I think we should all — and hopefully all will — embrace the challenge.
I never want to live through a financial crisis ever again. Neither do participants in my industry, or the leaders of the Structured Finance Association. To make that goal a reality requires a complex web of smart decisions, sound regulations, risk management, occasional humility, and constant learning. But at the end of the day, it also takes listening to people who do not look like you. And that means more diversity in Wall Street’s C-suites.
I am always thinking about what steps leaders of the financial services industry can take both to improve the impact of what we do and to lower risk. Creating a more diverse financial services industry is top of that list. If we’re successful, I know I’ll sleep better at night, and so should you.