Divided cityscape symbolizing the racial wealth gap.

Banking on Change: Can Financial Institutions Close the Racial Wealth Gap?

Author's portrait.
Mira Elwood in Business & Economy August 2025 • 5 min read.

"Exploring the complex role of black banks and public policy in addressing economic inequality in America."


The racial wealth gap in the United States is a persistent and deeply entrenched issue, with roots in discriminatory practices and policies that have spanned generations. While numerous factors contribute to this disparity, the role of the financial system, particularly banking, has been a subject of intense scrutiny. In her book "The Color of Money: Black Banks and the Racial Wealth Gap," Mehrsa Baradaran offers a sobering analysis of how public policy and banking legislation have historically disadvantaged black communities, perpetuating economic inequality.

Baradaran's work challenges conventional wisdom by exploring the limitations of black-owned banks as a solution to the wealth gap. While these institutions have played a vital role in serving underserved communities, they have been unable to overcome the systemic barriers that prevent black Americans from achieving economic parity. The book argues that a more comprehensive approach is needed, one that addresses the structural inequalities embedded in the financial system.

This article delves into the key themes and arguments presented in "The Color of Money," examining the historical context of black banking, the impact of discriminatory policies, and the ongoing challenges and opportunities for creating a more equitable financial landscape. It is inspired by news and publications focused on economics and racial justice.

The Color of Capital: How Banking Policies Shaped Racial Inequality

Divided cityscape symbolizing the racial wealth gap.

Baradaran's central argument revolves around the idea that the "color of capital" in the United States has historically been white, meaning that access to financial resources and opportunities has been disproportionately skewed in favor of white individuals and communities. This disparity, she contends, is not accidental but rather the result of deliberate policy choices that have systematically excluded black Americans from full participation in the financial system.

One of the key historical examples explored in the book is the Freedmen's Savings Bank, established after the Civil War to serve newly emancipated black Americans. While intended to promote financial independence, the bank was ultimately plagued by mismanagement and corruption, leading to its failure and a widespread loss of trust in banking among black communities. This early experience, Baradaran argues, set the stage for future challenges and reinforced the perception that the financial system was not designed to serve their interests.

The book highlights the following key aspects of banking's role in racial wealth inequality:
  • Discriminatory Lending Practices: Redlining and other discriminatory lending practices have historically limited access to homeownership and other forms of credit for black Americans, hindering their ability to build wealth.
  • Lack of Capital: Black-owned businesses often face challenges in accessing capital, limiting their ability to grow and create jobs in black communities.
  • Exploitative Financial Products: Predatory lending practices, such as payday loans and subprime mortgages, have disproportionately targeted black communities, extracting wealth and trapping families in cycles of debt.
  • Unequal Access to Banking Services: Black communities often have fewer bank branches and ATMs, making it more difficult to access basic financial services.
Baradaran also examines the impact of New Deal-era policies, such as the creation of the Federal Housing Administration (FHA), which while intended to promote homeownership, largely excluded black Americans due to discriminatory lending practices. This exclusion, she argues, contributed to the widening of the racial wealth gap during a period of unprecedented economic expansion for white Americans.

Moving Forward: Towards a More Equitable Financial Future

Baradaran's "The Color of Money" serves as a powerful call to action, urging policymakers, financial institutions, and community leaders to address the systemic inequalities that perpetuate the racial wealth gap. While black-owned banks can play a role in promoting financial inclusion, they cannot solve the problem alone. A more comprehensive approach is needed, one that includes policies to combat discrimination, promote access to capital, and protect consumers from predatory lending practices. Ultimately, creating a truly equitable financial system will require a fundamental shift in mindset, one that recognizes the historical injustices that have shaped the current landscape and commits to building a future where all Americans have the opportunity to thrive.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

Everything You Need To Know

1

What is the central argument in Mehrsa Baradaran's "The Color of Money" regarding the racial wealth gap?

Mehrsa Baradaran argues that the racial wealth gap is largely due to historical and ongoing discriminatory banking policies that have systematically excluded black Americans from full participation in the financial system. She contends that access to financial resources, or the 'color of capital,' has been disproportionately white due to deliberate policy choices, not accidental market outcomes. These policies include discriminatory lending practices and unequal access to banking services, which have hindered the ability of black communities to build wealth.

2

How did the Freedmen's Savings Bank contribute to the challenges faced by black communities in the U.S. financial system?

The Freedmen's Savings Bank, established after the Civil War, was intended to foster financial independence among newly emancipated black Americans. However, mismanagement and corruption led to its failure, resulting in significant financial losses for its depositors. This failure eroded trust in the banking system within black communities, reinforcing the perception that financial institutions were not designed to serve their interests. This early experience set the stage for future challenges in accessing financial services and accumulating wealth.

3

What specific discriminatory lending practices have contributed to the racial wealth gap, as highlighted in discussions of "The Color of Money"?

Several discriminatory lending practices have significantly contributed to the racial wealth gap. Redlining, for example, historically limited access to homeownership and other forms of credit for black Americans, preventing them from building wealth through property ownership. Predatory lending practices, such as payday loans and subprime mortgages, have also disproportionately targeted black communities, extracting wealth and trapping families in cycles of debt. These practices, combined with unequal access to basic banking services, have created systemic barriers to financial inclusion and wealth accumulation.

4

Beyond black-owned banks, what broader solutions does the analysis of "The Color of Money" suggest for addressing the racial wealth gap?

While black-owned banks play a role in promoting financial inclusion, a more comprehensive approach is needed to address the racial wealth gap. This includes implementing policies to combat discrimination in lending and housing, promoting access to capital for black-owned businesses, and protecting consumers from predatory financial products. A fundamental shift in mindset is required, one that acknowledges the historical injustices that have shaped the current financial landscape and commits to building a future where all Americans have an equal opportunity to thrive. Policies addressing structural inequalities embedded in the financial system are essential.

5

How did New Deal-era policies, such as the creation of the Federal Housing Administration (FHA), inadvertently contribute to the widening of the racial wealth gap?

While the Federal Housing Administration (FHA) aimed to promote homeownership, its implementation largely excluded black Americans due to discriminatory lending practices. This exclusion prevented black families from accessing the benefits of homeownership during a period of significant economic expansion for white Americans. Consequently, this discriminatory application of New Deal-era policies inadvertently contributed to the widening of the racial wealth gap by denying black communities the opportunity to build wealth through property ownership and appreciation.

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