The Color of Law A Forgotten History of How Our Government Segregated America by Richard Rothstein (z-lib.org).epub

EVEN WHEN mortgage loans were not insured by the FHA or the VA, banks
and savings (thrift) institutions pursued discriminatory policies. Banks and
thrifts, however, are private institutions. Can it fairly be said that these
discriminatory lending activities contributed to de jure segregation? I think
so.
Government deposit insurance programs underwrite bank and thrift
institution profits; in return, there is extensive oversight of lending practices.
Examiners from the Federal Reserve, the Comptroller of the Currency, the
Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift
Supervision all have regularly reviewed loan applications and other financial
records of bank and savings and loan offices to ensure that lending practices
were sound. Banks and thrifts were able to refuse service to African
Americans only because, until recently, federal and state regulators chose to
allow it.
The Federal Home Loan Bank Board, for example, chartered, insured,
and regulated savings and loan associations from the early years of the New
Deal but did not oppose the denial of mortgages to African Americans until
1961. It did not enforce the new race-blind policy, however—perhaps
because it was in conflict with the board’s insistence that mortgage
eligibility account for “economic” factors. Like the FHA, it claimed that
judging African Americans to be poor credit risks because they were black
was not a racial judgment but an economic one. As a result, its staff failed to
remedy the industry’s consistent support for segregation.
In 1961 the U.S. Commission on Civil Rights challenged regulators about
their complicity in banks’ redlining practices. Ray M. Gidney, then
Comptroller of the Currency (responsible for chartering, supervising,
regulating, and examining national banks), responded, “Our office does not
maintain any policy regarding racial discrimination in the making of real
estate loans by national banks.” FDIC chairman Erle Cocke asserted that it
was appropriate for banks under his supervision to deny loans to African
Americans because whites’ property values might fall if they had black
neighbors. And Federal Reserve Board chairman William McChesney
Martin stated, “[N]either the Federal Reserve nor any other bank supervisory
agency has—or should have—authority to compel officers and directors of
any bank to make any loan against their judgment.” Martin’s view was that
federal regulators should only prohibit the approval of unsound loans, not