Taking an Inclusive Approach to Equitable Banking: Michael Pugh on the Impact of Carver Bank
Michael Pugh arguably can be considered one of the most impactful people in banking today. As CEO and President of Carver Federal Savings Bank, the largest public Black-owned bank in the US, Pugh strives to provide accessible and equitable banking and financial services to those who traditionally have not been given access to such critical life functions. Banking, he believes, is so much greater than the business of safeguarding and managing money. “When you spend time sitting down with a small business entrepreneur to help them think about their business plan, or you're thinking about a commercial credit structure because a nonprofit wants to buy a building to expand the work they do, and then you see those efforts come to fruition—that's why I want it to be a banker,” says Pugh.
Eva Yazhari and Ed Stevens recently spoke with Pugh about the community-focused efforts of Carver Bank, which is headquartered in Harlem, New York and has branches throughout New York, as well as a growing digital presence. They discussed Pugh’s evolution in banking, the critical role financial health plays in the lives of individuals and communities, and why Carver Bank is a progressive force in the modern financial world. “The beautiful thing about Carver,” says Pugh, “is you can see the direct impact of your efforts in terms of how it changes lives and makes a difference.”
Editor’s note: This conversation has been slightly edited and condensed. To listen to the complete original version, visit The Beyond Capital Podcast.
A Conversation with Michael Pugh
The Federal Reserve estimated that in 2018 there were 55 million unbanked or underbanked adult Americans—a number that has likely risen since. This accounted for 22 percent of US households at the time. What is your reaction to this?
It is a staggering number, and the unfortunate part is that for many of the unbanked and underbanked community, it's a generational problem that has happened and it's passed on throughout the family. We've made it our mission at Carver to address that issue. The problem will be further exacerbated by the divide that continues to happen within wealth here in our nation.
It is an issue for financial institutions, as a whole industry, to think about how to invite those into the banking world in a way that's non-threatening and non-intimidating. And also, to try and dissuade the use of check cashers or hard money lenders as a means to have access to financial services, because we know in many cases those avenues can be the ones that create more of a spiraling effect in terms of the wealth gap.
What is behind this issue? Is it that the institutions aren't there to serve, or is it the lack of knowledge that people can simply go into a bank, or is it many issues?
It's a combination of all of those things. That's a really great question. You think about New York City, as an example. There are many first- and second-generation Americans that are using check cashers or non-traditional banking services because that's what they saw growing up. Or maybe they don't have all of the documentation to start a traditional bank account. Many start from a point where the service fees within many of the typical banks could make a difference. If you're being charged, as an example, $10 a month, just to have your account, that $10 a month is $120 a year. That could make the difference in how you feed your family if you're a person in a low-income situation.
It’s also about having access to banking. There are many areas of this country, surprisingly enough still today, that are banking deserts. This would be places where, frankly, if you have to significantly travel just to get to a bank but you've got check cashing on the corner, you might choose that as an option. So it is a combination of all of those issues.
You have a background in banking services across the country. What drew you to Carver in 2012 when you joined the company?
One of the first jobs that I had while in college was training to become a certified physical therapist assistant. I was doing that in geriatrics arena, which meant I was in nursing homes. I took great pleasure in the ability to be able to help people get range of motion and help them stay active. But this was a quick way to make you grow up, and frankly, it was very intense. I was convinced at that point that I wanted to continue to do something that focused on helping people and making a difference, but I didn't think that being in the healthcare sector was the right choice for me.
When I started my career in banking, the first twenty years or so were with large financial institutions. Those institutions afforded me a wonderful opportunity to learn about various aspects of financial management and be a part of some outstanding programs and initiatives to help communities and colleagues. Coming to Carver has really been kind of the crown jewel of my career opportunity. After spending twenty years in the large financial institutions and seeing so few people that looked like me, people of color, and not having the opportunities to focus more on the customer and the community—because the larger the institution, the more political and the more emphasis on shareholder return than relationships—I knew I wanted to continue doing something that would make a difference. I had to look for a different channel in terms of doing that, and Carver afforded me to do that.
The beautiful thing about Carver is you can see the direct impact of your efforts in terms of how it changes lives and makes a difference. When you spend time sitting down with a small business entrepreneur to help them think about their business plan, or you're thinking about a commercial credit structure because a nonprofit wants to buy a building to expand the work they do, and then you see those efforts come to fruition—that's why I want it to be a banker. I wanted to be a part of helping others learn what I learned about the flow of money. And then how to leverage your savings, your capital, gaining access to capital in order to do things that effectively could change neighborhoods communities for the good.
It's inspiring how you connect the role of yourself as a banker to the companies that you're helping think through their businesses and the impact that you're having.
Financial health is a key part of our overall wellness. Frankly, in many cases it doesn't get nurtured. I think we all would agree that if you don't have some financial health and wellness in that regard, and you don't have access to services, and it shapes a number of the things that you are able to do for your family and for your life.
This current pandemic has been a great example of how important financial health is. Many small business entrepreneurs throughout this pandemic weren’t quite sure how to survive and what they're going to do. Studies show that for African American businesses, approximately 41 percent of them may be expected to close and/or have closed their doors as a result of this pandemic.
When our administration, at the federal level, issue stimulus programs, the small businesses weren't sure how to get access to them. The larger financial institutions were certainly overwhelmed with calls. What many small businesses learned is that banking is more important than access to the branch that's on the corner. It's about the relationship that you have with someone at a financial institution that can participate in helping you construct solutions for your business. We were able to help community small businesses through the paycheck protection program with more than $35 million in access to capital provided to these small businesses. But the most important thing that we're proud of is that we participated in the preservation of more than 3,500 jobs.
The question of relationship is an important aspect of talking about banks. In many cases, some of the standards of banking today take the relationship out and make it more of an analysis of cash flow, assets, and so on. How do you train your people and how you lead when these kinds of paradoxes arise?
The person on the front end, the banker, we often joke that they're the first to fall in love with the new relationship. The folks in my role have to ask the tough questions to balance mission with standard regulatory protocol and critical things that must be considered for safety and soundness of a bank. The days of a handshake and off we go with a check from the bank are really gone. Our regulatory standards of banking are so heavily regulated. The 2007-2008 great recession, I think, reformed and changed a number of things. While those many of those changes have been very helpful because they've standardized a number of things, it has taken away a bit of the autonomy and the ability of banks, even community banks that are hyper-local and focused on the small business entrepreneur and the neighborhoods that we serve. Those banks, like us, are probably more challenged because the regulatory standards today demand that we have to look at everything the same way.
Once you've provided the training to say, ‘as you're thinking about solutions for customers, you must meet this protocol,’ we take it a step further through management loan committees or business review committees to look at critical things about the customer. Things such as how many jobs will the small business add to the communities and what’s the purpose of the small business. We spend time helping the small business entrepreneur think about their business plan and their strategy. And we know that if we don't do that kind of work, many of the large financial institutions just don't have the appetite and, in some cases, the bandwidth because the sheer volume of customers that they're faced with. But it certainly is the place where we spend the time to help further construct the story beyond the standard things that you must look at from a regulatory protocol.
Carver is now the largest Black-owned bank in the US. It has been designated as a CDFI, a community development finance institution. Can you unpack CDFIs for us and how that might allow you to operate differently than traditional banks?
We actually happened to be the largest Black-managed, publicly traded financial institution. There are at least two other black owned banks that are a bit larger than us in size in terms of assets, but they're not public companies.
The CDFI is a designation that you can receive if you meet certain criteria. One of the most important criteria is from the U S treasury that states 60 percent of every dollar you have on deposit must be reinvested in the communities that you serve, particularly communities may be low to moderate income in some way. Carver goes beyond that 60 percent: Eighty cents of every dollar on deposit is reinvested in the communities that we serve.
We've spent time educating more than 15,000 people on the financial literacy and financial education side. This has included workshops and various programs to help consumers think about first time home buying, how to launch their small business, and how to develop a budget in addition to providing access to capital.
One of the things we're very proud about is our work with women and minority business entrepreneurs. I would dare to say Carver is one of the premier banks in greater New York City for women and minority business entrepreneurs because there's no other financial institution that I can think of that will spend the amount of effort and time and energy to really figure out a solution for women and minority business entrepreneurs to help them thrive. We have so many examples of how we've done that in a way that has just made a difference and changed the trajectory.
How do you bring impact into your interactions with your employees or company policies?
There are a couple of things that I'll highlight. One is that I enjoy working in a consensus-driven environment. I don't make critical business decisions about the institution and for the institution without including my senior team. I'm very proud of about that effort and approach because I've worked in large firms where there were talented people in the room afraid to speak up. They might've known important pieces of information that could have changed or impacted a business decision but did not feel that they were empowered to be able to share those opinions.
I've also worked in settings where diversity and inclusion weren't really embraced or welcomed. What has just been wonderful about the experience of being a Carver has been to ensure that you have an environment where folks are empowered to speak up, disagree with you, and challenge thoughts so that we can make the very best decisions based on the combination of talent.
And then diversity and inclusion is so important about our business decisions. One hundred percent our board happens to be of African American or Caribbean American descent. What is powerful beyond that is that at least 30 percent of our board happens to be women of color. For a public company, that's a really big deal because now you're talking about including leadership team with all different backgrounds and experiences to be a part of decision-making.
I have a very talented, diverse group of leaders from all different ethnic backgrounds. We also have core values that we've doubled down on as part of how we engage and make decisions. Those values are trust results, accountability, and community. In any decision that we're talking about making, we do the checkup: Are we trusting and aligning the decision with the very best choices that will be favorable for shareholders in the community? Can we measure the impact of what we're doing? Who's going to own it? How will it make a difference again, in our community?
What’s something that's giving you hope right now?
One of the biggest things that is giving me hope is the response of a number of large companies to the social justice and diversity and inclusion efforts. My most fervent hope is that this is not something that will be ephemeral—and so far, it hasn't been. Companies seem to be doubling down on it. And I think investors and certainly boards are doubling down on the focus of diversity and inclusion and equality.
What we often know is that talent is equally distributed in this universe. We all have some form of talent and the ability to see or do something, in a very creative way. But opportunity isn't necessarily evenly distributed. There are many, many talented people that don't necessarily get opportunity because they haven't had access and exposure to the right folks in order to be discovered and given a chance. What I love about what's happening today is to see so many companies say in order for us to thrive as a great nation on a go-forward basis we must engage the talent. And we must create opportunities for many, many people and for people that are different. They can't all look and think the same in the room.
Is there a key trend that you're watching in the banking industry?
We're certainly looking at what's happening with state of small businesses and the impact of the pandemic. We expect that there's going to be more aftershock from this pandemic with small businesses. I was am surprised at the number of small businesses that are closed even in downtown New York, where it's a place that has a pulse and a never-ending energy. We're continuing to pay attention to that trend and think about how we help support businesses, especially as many of them will need to migrate to a digital and e-commerce world.
Where do you see Carver in the next ten to fifteen years?
We'll continue to grow. I am extremely confident about that. And we will continue to be one of the leading banks nationally that helps to support women entrepreneurs. We know that women entrepreneurs have been one of the fastest growing segments in our country, and they need help. They need support from a bank that cares in order to help them shape and form their businesses. And certainly, minority entrepreneurs. We will continue to have a laser focus on that.
Also, our digital reach and our ability to have a platform that allows us to reach customers in other States, so that we can make sure we're taking care of you wherever you're traveling. Those are the things that will be important because I think the industry is becoming less focused on brick and mortar and the need to have a bank on every corner versus the ability to access digitally. So ten years from now, when we look back on this, you will, I think you'll feel a sense of pride as I will that we've continued to thrive and support the community and grow to do it at a much larger scale.
To learn more about Michael Pugh and Carver Bank visit carverbank.com.
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