It might seem that,because of China’s e-yuan launch, governments around the world have been clamoring to get a digital version of their currency. The consensus is that a central bank digital currency (CDBC) will give the nation behind it 21st century economic advantages as well as the opportunity to blaze a trail into the blockchain wilderness.
Ever since cryptocurrencies swept the world in 2017, the discussion of what to do about their inner workings never went away. It was suggested that the accounting methods used by today’s banks are rendered “legacy” compared to what can be done with blockchain. Even now, with little in terms of official response past a crypto card and study promises, crypto transfers flourish. El Salvador made bitcoin an official medium of exchange, in other words, outsourcing the role of CDBC to a market-proven cryptocurrency. Ukraine recently joined the line-up of nations legalizing crypto.
And it looks like things might be staying this way for a while.
Top bankers giving crypto a second look
As reported by the Bank Administration Institute, banks might simply attempt to integrate the crypto market into their systems with a plug like ACH or Fedwire (the often-dismissed “legacy” payment services). It’s a way to speed things up and avoid disruption when things are getting out of hand, but in a good way.
Some banks outside of the top 10 in the U.S. have already made a good effort out of converting to a wholly blockchain system. But even after all this time, they still mostly offer U.S. dollar tokenization. That’s not quite the same as full-bore crypto adoption; more of a workaround intended to enable dollar transfers on blockchain without actually transacting in cryptocurrencies.
Perhaps this is the ideal way of going about things. A wholly decentralized financial market, plugs included. Maybe the future of DeFi is more about blockchain technologies than the cryptocurrencies that run on blockchains?
“Crypto is a challenge to traditional banking”
Still, Benoît Cœuré, head of the innovation hub at the Bank of International Settlements (BIS), sees the crypto market as a possible challenge to the banking system:
Decentralized finance (DeFi) platforms are challenging traditional financial intermediation. They all come with different regulatory questions, which need fast and consistent answers… But make no mistake: global stablecoins, DeFi platforms and big tech firms will challenge banks’ models regardless.
“Financial intermediation” means the middleman business. Specifically, Cœuré is telling banks they’re missing out on the market-making business. DeFi lets private individuals lend and borrow from one another without a single bank standing in the middle, taking its share of the profits.
He’s sounding a wake-up call: “Hey, stodgy old financial institutions! A bunch of early adopters are eating your lunch, and if you don’t get to the table soon there’ll be nothing left but crumbs!”
Cœuré goes on to praise CBDCs, stating that countries should work together on acquiring one. While he doesn’t tell us why, he does mention how CBDCs preserve today and lay the groundwork for tomorrow. It seems that Cœuré sees digitalization as a way of preventing a sovereign currency from getting out of hand.
For banking corporations, even the largest ones, what’s at stake is profit and market share.
For global central banks, what’s at stake is much larger. If they don’t move fast, they stand to lose control of their own economies. A CDBC offers all of the ease-of-use benefits of cryptocurrencies, and all the “benefits” of a national currency: legislation, regulation, control over interest rates and inflation. Cœuré is telling central banks what they need to do in order to stay relevant as institutions in an age of cryptocurrencies and decentralized blockchain-enabled smart contracts.
If digitalization is a necessary measure, that means things are already failing on other fronts. Cœure, too, notes that stablecoins just as stable as those we expect from governments are already here. One can purchase or own them on the independent market. While Cœure acknowledges that central banks seem unwilling to get into the “nitty-gritty”, the market has long moved past the point where the actions of one bank can have a serious negative effect.
Cœuré is announcing, loud and clear, that central banks must act. Cryptocurrencies aren’t going away, and they can’t be ignored any longer. They’re such a serious threat to economic control and authority that we need to see a FedCoin, a EuroCoin, a YenCoin and all the rest.
The alternative is to either outsource CBDC creation like El Salvador did, or simply to close up shop and brush off the résumés. Those are the choices facing banks today.
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Black customers risk being racially profiled on everyday visits to bank branches. Under federal laws, there is little recourse as long as the banks ultimately complete their transactions.
Clarice Middleton shook with fear as she stood on the sidewalk outside a Wells Fargo branch in Atlanta one December morning in 2018. Moments earlier, she had tried to cash a $200 check, only to be accused of fraud by three branch employees, who then called 911.
Ms. Middleton, who is black, remembers thinking: “I don’t want to die.”
For many black Americans, going to the bank can be a fraught experience. Something as simple as trying to cash a check or open a bank account can lead to suspicious employees summoning the police, causing anxiety and fear — and sometimes even physical danger — for the accused customers.
There is no data on how frequently the police are called on customers who are making legitimate everyday transactions. The phenomenon has its own social media hashtag: #BankingWhileBlack.
Most people who experience an episode of racial profiling don’t report it, lawyers say. Some find it easier to engage in private settlement negotiations. The few who sue — as Ms. Middleton did — are unlikely to win in court because of loopholes in the law. Now, the police killing of George Floyd in Minneapolis, which set off nationwide protests against systemic racism, is prompting more people to speak up.
Ms. Middleton had gone to the Wells Fargo branch in Druid Hills, a wealthy, mostly white neighborhood in Atlanta, to cash a refund for a security deposit from a real estate company that had an account with the bank. Three bank employees examined the check and her identification, but refused to look at the additional proof Ms. Middleton offered. They declared the check fraudulent, and one employee called the police, according to her lawsuit.
When an officer arrived, Ms. Middleton showed him her identification and the check stub. As a former bank teller, she knew that would be proof enough that her check was authentic. The officer left without taking action. The Wells Fargo employees asked Ms. Middleton whether she still wanted to cash the check.
“I said yes, because they had written all over the back of the check,” said Ms. Middleton, who sued Wells Fargo last year for racial discrimination and defamation and sought an unspecified amount of damages.
Mary Eshet, a Wells Fargo spokeswoman, said Ms. Middleton had begun yelling “abusive and profane language” at the employees when she saw her ID being scanned.
“Employees tried to address Ms. Middleton’s concerns by explaining our policies, but Ms. Middleton continued to yell profane language,” Ms Eshet said. “She was asked to leave the branch multiple times and refused, so our employees followed their processes to engage law enforcement.” She added that the bank “appreciates the sensitivities of engaging law enforcement and the importance of continually reviewing our training, policies and procedures.”
Ms. Middleton’s lawyer, Yechezkel Rodal, said her client had not used profanity. “Wells Fargo is in possession of the video surveillance showing exactly what happened in the branch that morning,” he said. “The video will not support Wells Fargo’s lies.”
Some incidents play out without the involvement of police or courts.
In March 2019, Jabari Bennett wanted to withdraw $6,400 in cash to buy a used Toyota Camry from a dealership in Wilmington, Del. He had just sold his house in Atlanta and moved to Wilmington to live with his mother. Having been a Wells Fargo customer for four years — he had around $70,000 in his account from the sale of his house — Mr. Bennett walked into a nearby branch expecting to be back at the dealership and in his Camry within minutes.
He came away empty-handed and reeling.
First, a teller refused to accept that he was the account holder, questioning his out-of-state driver’s license, he said — even though Mr. Bennett had informed the bank of his new address just two weeks earlier. Then, a branch manager told Mr. Bennett to leave. He left in disbelief, then returned to try to complete the transaction. This time, the manager threatened to call the police. Mr. Bennett left again.
The experience “made me feel like I was nothing,” Mr. Bennett said.
He abandoned the deal on the car. A week later, he moved all his money out of Wells Fargo and then hired Mr. Rodal, who had gained a reputation for representing black customers against the bank after the story of one of his clients went viral in 2018. Mr. Rodal sent Wells Fargo a letter, but negotiations stalled.
Mr. Bennett decided to share his story publicly in light of the recent protests: “I don’t want anybody else to go through what I went through.”
Ms. Eshet, the Wells Fargo spokeswoman, said that branch employees were trained to spot potential fraud, and that the bank had increased security protocols to thwart internet scams involving large transfers of money.
“In this instance, there were enough markers for our team to conduct extra diligence in order to protect the customer and the bank,” she said.
The protests also pushed Benndrick Watson into action.
Last spring, Mr. Watson was driven out of a Wells Fargo branch in Westchase, a wealthy neighborhood near Tampa, Fla., by what the branch manager described as a “slip of the tongue.”
Mr. Watson, who was already a bank customer with a personal checking account, went to the branch to open a business account for his law firm.
A banker did a corporate records search and found Mr. Watson’s other business, a record label. Mr. Watson tried to direct the employee to the records for his law firm instead.
Eventually, the branch manager got involved. He sat down across from Mr. Watson and watched him enter information, including his Social Security number, into a keypad.
Then, the man uttered the N-word.
”He just said it — clear as day, no mistake,” Mr. Watson said. “My jaw just dropped, I dropped the pen, there was silence, he kind of looked at me, I said: ‘Did you really just say that?’”
Mr. Watson said the man had immediately begun to protest, saying that he had not meant to use the word, and that he was deeply sorry. Mr. Watson did not buy it. He got up and left. The manager followed him to his car, apologizing profusely, and resigned from the bank shortly afterward.
“I felt like I had a knife in my gut,” Mr. Watson said. “It’s a sickening word.”
Mr. Watson turned to Mr. Rodal, who wrote to Wells Fargo seeking an apology. The bank’s regional president, Steve Schultz, responded. “It seems that the utterance of the offensive term was unintentional,” Mr. Schultz wrote, but said the bank had taken “corrective action” against the branch manager anyway, without providing details. Ms. Eshet of Wells Fargo said the manager was deemed ineligible for any job with the bank.
Mr. Watson sued Wells Fargo in federal court in Florida on June 4.
In a statement, Ms. Eshet said: “We deeply apologize to Mr. Watson. There’s no excuse for it, and while we took action to address the matter, it cannot undo what happened and how he felt. We are very sorry.”
The problem is hardly confined to Wells Fargo. Last June, Robyn Murphy, a public relations consultant in Maryland, took her 18-year-old son, Jason, to a Bank of America branch in Owings Mills, Md., to open a joint savings account. Ms. Murphy, a 20-year customer of the bank, said she was shocked when an employee refused to proceed after a computer program flagged her son’s Social Security number as fraudulent.
Ms. Murphy protested: Her son had his own checking account at the bank. His Social Security number had already been used there without issue. The Murphys are black. Mr. Murphy, his mother said, is 6-foot-9.
“For all I know, it’s fraud,” the employee told them. Ms. Murphy said he had asked them to come back with Mr. Murphy’s Social Security card. When Mr. Murphy stood up, the employee yelled: “Don’t get up!”
After Ms. Murphy contacted a senior vice president she knew at the bank, other officials apologized and offered to open the branch whenever it was convenient for the Murphys to return and complete the transaction — which they did.
“It weighed on us very heavily for a long time,” Ms. Murphy said.
“We understand the client did not feel she and her son were treated properly in this interaction with our team, and we regret that,” Bill Halldin, a Bank of America spokesman, said in an emailed statement. “These alerts are designed to protect our clients from fraud and misuse of their personal information.” He declined to comment on what, if any, action the bank had taken against the employee.
Banks say they reject racism of any sort. The country’s four largest banks by asset size, JPMorgan Chase, Wells Fargo, Bank of America and Citigroup, all require branch employees to complete annual diversity training, according to the banks’ representatives.
Still, banks have not managed to weed out discrimination. The New York Times reported in December that a JPMorgan Chase employee had described a customer as being “from Section 8” and therefore undeserving of service. The bank has since said it would seek to increase its sensitivity to issues surrounding race.
But little is mandated by law. The Civil Rights Act of 1964 lists specific businesses that may not treat black customers differently: movie theaters, hotels, restaurants, and performance and sports venues. Federal courts have held that because the law identifies the kinds of businesses to which it applies, those not on the list, such as banks, cannot be held to it. That loophole makes it hard for victims of racial profiling to win in court.
There is an additional limitation. In 1866, Congress created new laws to establish rights for black Americans, including one giving them the right to enter into agreements to buy goods or services and have those contracts enforced. Courts have since ruled that the law requires only that service be granted eventually.
In 2012, for instance, a federal appeals court ruled that a Hispanic man who had been turned away by a white cashier at a Target store in Florida did not have a case against Target because he was able to complete his purchases with a different cashier.
That could stymie Ms. Middleton’s case. Wells Fargo is arguing that because she was eventually able to cash her check, a judge should dismiss it.
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