The Federal Reserve system, above in Washington, D.C., has stood by for decades as racial inequality persisted, the writers say. It’s addressing the issues now, and it has a lot of work to do. (T.J. Kirkpatrick • New York Times/The Minnesota Star Tribune)

Benign neglect.

This is a charitable description of the Federal Reserve system's treatment of Black Americans. The scar of race is etched in the Fed's failure to use its authority to stop illegal discrimination in finance as well as in its disinterest in the racial disparities resulting from its policies.

Last July, former Federal Reserve Board Chairwoman Janet Yellen suggested during a congressional hearing that there was little the Fed could do to address the disproportionately high African American unemployment rate. Joblessness among Blacks has been double that experienced by whites for decades.

While Yellen, now secretary of the Treasury under President Joe Biden, has since changed her tune — and while current Federal Reserve Chair Jerome Powell has recently underscored new concern about racial inequality — there remains a striking void of concrete policies.

The Federal Reserve stood by for decades as access to housing, credit and opportunity were denied to Black Americans. The current relative economic position of Black people is comparable with its standing in 1979: compared with white men, Black men earn 31% less on average and Black women 19% less than white women. The statistics are equally discouraging when considering the broader BIPOC (Black, Indigenous and people of color) communities.

The Federal Reserve's decision in 2013 to tighten monetary policy as national joblessness fell, for example, ignored the sky-high 13% Black unemployment rate and denied Black families the opportunity to benefit from the economic revival that white America enjoyed.

Stunningly, white households own more than 11 times the net worth of Black families, and this gap has persisted for nearly six decades.

After decades of resistance to conversations on racial equity, the Federal Reserve is now asking for input on how to improve the decades-old Community Reinvestment Act. Passed by Congress in 1977, the law gives the Federal Reserve — along with several other agencies — responsibility to combat discriminatory "redlining," or the unjustified denial of mortgages to low- and moderate-income borrowers in communities of color.

BIPOC-owned businesses — despite getting approval based on good personal or business credit ratings — receive much less financing than their white counterparts. Today only 40% of Black-owned firms receive the full loan amounts requested compared with 68% of white-owned firms. Racial demographics, including economic and community-specific data, must be made a part of any future banks' loan processing and evaluations in order to first see, and then correct.

BIPOC-owned businesses also have weaker banking relationships and fewer financing options than their white-owned counterparts — a persistent legacy of redlining. They rely on Community Development Financial Institutions (CDFIs), Minority Depository Institutions (MDIs) and other local intermediaries to acquire loans and financial services.

The combination of historically unfair treatment and the denial of traditional banking and financial services in BIPOC neighborhoods depressed the scale and scope of resources needed to achieve economic prosperity and asset accumulation.

The Federal Reserve can, if it chooses, make a difference. It should, among other things, require banks and other financial institutions in white communities to extend similar services in BIPOC neighborhoods by establishing minimum lending and investing requirements in low- and moderate-income neighborhoods. It can also require these financial institutions to adopt greater flexibility and innovation in their lending products for BIPOC borrowers and nontraditional financial intermediaries, such as MDIs and others.

We applaud the principles laid out in the Federal Reserve Racial and Economic Equity Act introduced last summer in Congress by Sens. Elizabeth Warren, D-Mass., and Kirsten Gillibrand, D-N.Y., and Rep. Maxine Waters, D-Calif. This bill requires the central bank to take decisive action to minimize and eliminate racial disparities in employment, wages, wealth and access to affordable credit.

Given the widening wealth gap and disproportionate levels of unemployment in BIPOC communities — which have only worsened during the pandemic — this level of attention to long-standing inequalities is critical.

The Federal Reserve's insistence that its main policy tool is to set interest rates for borrowing money to buy a home or start a business ignores glaring racial disparities in the financial services under its watch. Why are Black business owners denied bank loans at triple the rate of nonminority business owners? Why, on average, do Black and Latinx businesses have $7 billion in unmet capital needs annually? The answer: racial inequities permeate who gets loans and on what terms.

The Community Reinvestment Act, had it been enforced, could have changed the landscape for BIPOC communities nationwide. Instead, it took a national movement 50 years later to force the Federal Reserve to look its racist policies in the eye and acknowledge responsibility for its shortcomings. It has the chance now, however, to learn from history and commit to working creatively and deliberately to improve the financial health of all Americans, not just white Americans.

Gary L. Cunningham is president and CEO of Prosperity Now, a nonprofit based in Washington, D.C., focused on financial security for all Americans. Lawrence R. Jacobs is a professor at the University of Minnesota and co-author of "Fed Power: How Finance Wins."