Giving Credit Where It’s Due: The Civil Rights Coalition, the Federal Reserve, and Asset-Based Reserve Requirements

Samuel Milner

This paper explores how the civil rights movement participated in debates over financial reform in the hopes of transforming monetary policy into a means to encourage African-American economic development. In the 1960s and 1970s, the Federal Reserve’s efforts to combat inflation generated unemployment that fell disproportionately upon the minority groups least able to bear it. In response, African-American economists joined with the representatives of housing and other hard-hit sectors who demanded that the Federal Reserve adopt new monetary tools that would allocate credit to areas deemed social priorities. This article reviews the application of several of these approaches to the objectives of the civil rights movement, including open market operations in housing-specific agency paper and supplementary or asset-based reserve requirements. In particular, I discuss the policy proposals of Andrew Brimmer, the first African-American Federal Reserve Governor and a noted supported of supplementary reserve requirements. Although Brimmer’s ideas attracted much attention from Congress, his colleagues at the Federal Reserve rejected his approach to credit allocation as inflationary. They instead supported financial deregulation as the best means to encourage a greater overall flow of credit. Yet given the existing reluctance if not outright discrimination on the part of lenders to advance credit to inner-city or minority borrowers, African-American economists argued that it would be necessary to “deregulate” the market’s own structural biases as well. Unsuccessful demands for direct credit allocation thus ultimately led the civil rights movement to co-opt the language of financial deregulation, yielding a compromise in which monetary policy would remain focused on aggregate stability even as financial supervision grew increasingly concerned with the identity of those receiving credit.