The Color of Law: A Forgotten History of How Our Government Segregated America

by Richard Rothstein

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 require the nondiscriminatory approval of sound loans. If a black family was denied a loan because of race, Martin asserted, “the forces of competition” would ensure that another bank would come forward to make the loan. With his regulatory authority over all banks that were members of the Federal Reserve System, and with all such banks engaging in similar discriminatory practices, Martin surely knew (or should have known) that his claim was false.