Shares of Black-owned banks skyrocketed on Tuesday after Netflix announced that it will shift 2 percent of its cash holdings — initially $100 million — into banks and lending institutions that directly support low- and moderate-income Black communities.
“Systemic racism in America has sustained a centuries-long financial gap between Black and White families,” the online streaming giant said in a prepared statement. “As part of our commitment to racial equity, we are turning understanding into action.”
Netflix said it plans to redirect some of its cash from “the major banks, where big multinational companies including ours keep most of their money,” into these communities.
Doing so can make a meaningful difference, helping more families buy their first home or save for college, and more small businesses get started or grow, Netflix said.
Banks that are Black-owned or Black-led represent 1 percent of U.S. commercial banking assets, according to the Federal Deposit Insurance Corporation (FDIC).
The combined assets of Black-owned U.S. banks amount to “a bad weekend for JPMorgan Chase revenue-wise,” saidMehrsa Baradaran, a professor at U.C. Irvine’s law school. In her book, “The Color of Money: Black Banks and the Racial Wealth Gap,” Baradaran argues that Black-focused lenders are undercapitalized, depriving Black communities of opportunities to lift themselves out of poverty, New York Times reported.
Nineteen percent of Black families have no assets at all or negative wealth, according to the U.S. Federal Reserve.
News of Netflix’s commitment sent shares of Black-owned banks soaring Tuesday, Bloomberg reported. Carver Bancorp Inc. stock gained as much as 173 percent in New York trading and Broadway Financial Corp. gained as much as 83 percent.
As the first step in its $100 million commitment, Netflix said it will move $35 million, split two ways:
Hope Credit Union serves more than 1.5 million people in states including Alabama and Louisiana, but it doesn’t have enough money to fully support the financial needs in its communities, according to CEO Bynum, Bloomberg reported.
“We are capital-starved, just like the people in the communities we serve,” Bynum said. “Having a global voice like Netflix say it’s important to invest in financial institutions like Hope is tremendously important, not just for the capital we will use to make mortgage loans and small business loans, but for what it says.”
The money will have “a tremendous impact” in Black communities, Bynum told the New York Times. “Pound for pound, no entity has a bigger impact” than a community lender, he said, especially for small businesses and aspiring homeowners.
Netflix CEO Reed Hastings and his wife, philanthropist Patty Quillin recently donated $120 million to the United Negro College Fund (UNCF), Morehouse College and Spelman College. Each institution will receive $40 million.
Netflix executive Aaron Mitchell, who came up with the idea of shifting money into Black-owned banks, said Netflix still has work to do when it comes to hiring Black employees.
The company has no Black executives among its eight top officers and added its first Black board member in 2018. Black employees represent 7 percent of Netflix’s employee base, up from 4 percent three years ago. The number of Black vice presidents has tripled to nine over the same period, Bloomberg reported.
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Netflix said in a press release that it plans to redirect even more cash to Black-led and Black-focused institutions as the company grows, and hopes to be a model for other large companies to do the same.
“For example, if every company in the S&P 500 allocated a modest amount of their cash holdings into efforts like the Black Economic Development Initiative, each 1 percent of their cash would represent $20 billion-to-$30 billion of new capital. And that would help build stronger communities, offering more Black families pathways to prosperity and a more equitable future.”
Billionaire investor Robert F. Smith has proposed The 2 Percent Solution, suggesting that big companies donate 2 percent of their annual profits to Black-owned businesses, Forbes reported. According to Smith, the best way to begin reversing corporate America’s history of structural racism is for big banks and large companies to spend the next 10 years investing directly in banking, telecom, tech, education and healthcare infrastructure to benefit the Black community.
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