United States Government Accountability Office

GAO Testimony 

Before the Subcommittee on Oversight 

and Investigations, Committee on 

Financial Services, House of 

Representatives

FINANCIAL SERVICES 

INDUSTRY 

Overall Trends in 

Management-Level Diversity 

and Diversity Initiatives, 

1993-2004 

Statement of Orice M. Williams, Director 

Financial Markets and Community Investment 

For Release on Delivery

Expected at 2:00 p.m. EDT

Wednesday, July 12, 2006

 

GAO-06-843T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

July 12, 2006

FINANCIAL SERVICES INDUSTRY

Overall Trends in Management-Level 

Diversity and Diversity Initiatives, 1993-

2004 

 

Highlights of GAO-06-843T, a testimony 

before the Subcommittee on Oversight 

and Investigations, Committee on

Financial Services, House of 

Representatives 

A July 2004 congressional hearing 

raised concerns about the lack of

diversity in the financial services

industry, particularly in key 

management positions. Some 

witnesses noted that these firms 

(e.g., banks and securities firms) 

had not made sufficient progress in 

recruiting minorities and women at 

the management level. Others 

raised concerns about the ability of 

minority-owned businesses to raise 

debt and equity capital. 

At the request of the House 

Financial Services Committee,

GAO was asked to provide a report

on overall trends in managementlevel diversity and diversity 

initiatives from 1993 through 2004. 

This testimony discusses that 

report and focuses on (1) what the 

available data show about diversity 

at the management level, (2) the 

types of initiatives that the

financial services industry has 

taken to promote workforce 

diversity and the challenges 

involved, and (3) the ability of 

minority- and women-owned 

businesses to obtain capital and 

initiatives financial institutions 

have taken to make capital 

available to these businesses. 

For our analysis, we analyzed data

from the Equal Employment 

Opportunity Commission (EEOC); 

reviewed select studies; and 

interviewed officials from financial 

services firms, trade organizations, 

and federal agencies. 

GAO makes no recommendations 

at this time. 

From 1993 through 2004, overall diversity at the management level in the 

financial services industry did not change substantially, but some 

racial/ethnic minority groups experienced more change in representation 

than others. EEOC data show that management-level representation by 

minority women and men overall increased from 11.1 percent to 15.5 percent 

(see fig. below). Specifically, African-Americans increased their

representation from 5.6 percent to 6.6 percent, Asians from 2.5 percent to 4.5 

percent, Hispanics from 2.8 percent to 4.0 percent, and American Indians 

from 0.2 percent to 0.3 percent. 

Financial services firms and trade groups have initiated programs to 

increase workforce diversity, but these initiatives face challenges. The

programs include developing scholarships and internships, partnering with 

groups that represent minority professionals, and linking managers’ 

compensation with their performance in promoting a diverse workforce. 

Some firms have developed indicators to measure progress in achieving 

workforce diversity. Industry officials said that among the challenges these 

initiatives face are recruiting and retaining minority candidates, as well as

gaining the “buy-in” of key employees, such as the middle managers who are

often responsible for implementing such programs. 

Research reports suggest that minority- and women-owned businesses have 

difficulty obtaining access to capital for several reasons, such as that these 

businesses may be concentrated in service industries and lack assets to 

pledge as collateral. Some studies suggest that lenders may discriminate, 

but proving such an allegation is complicated by the lack of available data. 

However, some financial institutions, primarily commercial banks, said that

they have developed strategies to serve minority- and women-owned 

businesses. These strategies include marketing existing financial products 

specifically to minority and women business owners. 

Workforce Representation in the Financial Services Industry at the Management Level by 

Racial/Ethnic Group and Gender (1993, 1998, 2000, and 2004) 

Percentage

Hispanic

White women

African-American

Total minority

White men

American Indian

Asian

Source: GAO analysis of EEOC data.

1993 1998 2000 2004

0

20

40

60

www.gao.gov/cgi-bin/getrpt? GAO-06-843T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Orice M. 

Williams at (202) 512-5837 or 

williamso@gao.gov.
Madam Chairwoman and Members of the Subcommittee: 

I am pleased to be here today to discuss our work on two important 

issues: workforce diversity in the financial services industry and access to 

capital for minority- and women-owned businesses. Two years ago, this 

subcommittee held a hearing that raised concerns about the lack of 

diversity in the financial services industry, particularly in key management 

positions.1

 As you may recall, some witnesses noted that these firms—

banks and securities firms, for example—had not made sufficient progress 

in recruiting minorities and women at the management level. Others 

expressed concerns about the ability of minority-owned businesses to 

raise debt and equity capital. 

My remarks are based on our report that is being released today, which we 

prepared at the request of the Chairman and Ranking Minority Member of 

the full committee, the Chairman and Ranking Minority Member of the 

Subcommittee on Oversight and Investigations, and Representative David 

Scott.2

 Specifically, I will discuss (1) what the available data show 

about diversity at the management level in the financial services industry 

from 1993 through 2004, (2) the types of initiatives that the financial 

services industry and related organizations have taken to promote 

workforce diversity and the challenges involved, and (3) the ability of 

minority- and women-owned businesses to obtain capital and initiatives 

financial institutions have taken to make capital available to these 

businesses.3

For our analysis, we used the Equal Employment Opportunity 

Commission’s (EEOC) Employer Information Report (EEO-1) data on 

 1

Diversity in the Financial Services Industry and Access to Capital for Minority Owned 

Businesses: Challenges and Opportunities, Hearing Before the Subcommittee On 

Oversight and Investigations of the House Committee on Financial Services, 108th Cong. 

(2004). 

2

GAO, Financial Services Industry: Overall Trends in Management-Level Diversity and

Diversity Initiatives, 1993–2004, GAO-06-617 (Washington, D.C.: June 1, 2006). 

3

A minority-owned business is defined by the U.S. Census Bureau as a business in which a 

minority owns 51 percent or more of the stock or equity in the business. A woman-owned

business is defined by Census as a business in which a woman owns 51 percent or more of 

the stock or equity in the business. 

Page 1 GAO-06-843T 
financial services firms with 100 or more employees.4

 We also reviewed 

publicly available information, including reports, and interviewed officials 

from a variety of financial services firms, including commercial banks, 

securities firms, and private equity/venture capital organizations, as well 

as representatives from industry trade organizations and federal agencies.

In summary: 

From 1993 through 2004, overall workforce diversity at the management 

level in the financial services industry did not change substantially, but 

some racial/ethnic minority groups experienced more change in 

representation than others.5

 EEO-1 data show that management-level 

representation by minority women and men overall increased from 11.1 

percent to 15.5 percent. Specifically, African-Americans increased their 

representation from 5.6 percent to 6.6 percent, Asians from 2.5 percent to

4.5 percent, Hispanics from 2.8 percent to 4.0 percent, and American 

Indians from 0.2 percent to 0.3 percent. Representation by white women 

remained constant at slightly more than one-third during this period, while 

representation by white men declined from 52.2 percent to 47.2 percent. 

Depository institutions, such as commercial banks, and insurance 

companies generally were more diverse at the management level than 

securities firms. In addition, according to the 2004 EEO-1 data, minorities 

held 13.5 percent and white women held 32.4 percent of all “officials and

managers” positions in the accounting industry.

Although financial services firms and trade groups have initiated programs 

to increase workforce diversity, these initiatives face challenges that may

help explain why overall diversity at the management level has not 

changed substantially. Officials at financial services firms said that 

diversity was an important goal and that top leadership was committed to 

recruiting and retaining minority and women candidates. Some financial

services firms have established scholarship and internship programs or 

partnered with groups that represent minority professionals. Officials from 

 4

We used the EEO-1 “officials and managers” job category as the basis for our discussion of 

management-level diversity within the financial services industry. EEOC defines the job 

category of “officials and managers” as occupations requiring administrative and 

managerial personnel, who set broad policies, exercise overall responsibility for execution 

of these policies, and direct individual departments or special phases of a firm’s operation. 

5

For the purposes of this testimony, we focused the diversity discussion on changes in

management-level representation over time by racial/ethnic minority groups, including 

African-Americans, Asians, Hispanics, and American Indians. 

Page 2 GAO-06-843T 
a few firms told us that they had begun linking managers’ compensation to 

their performance in promoting workforce diversity, and some firms had 

developed indicators (e.g. representation by minorities and women in key 

positions) to measure progress in achieving workforce diversity. Industry 

officials said that among the challenges these initiatives face are recruiting

and retaining minority candidates, as well as gaining the “buy-in” of key 

employees, such as the middle managers who are often responsible for 

implementing such programs. 

Research reports and discussions with financial services firms and 

relevant trade groups suggest that minority- and women-owned businesses 

generally have difficulty obtaining access to capital in conventional 

financial markets. A 2004 report by the U.S. Department of Commerce’s 

Minority Business Development Agency (MBDA) stated that minorityowned businesses may have difficulty obtaining capital because they are

often concentrated in service industries and lack sufficient assets to 

pledge as collateral.6

 Some studies suggest that lenders may discriminate 

in deciding whether to make loans to minority businesses, but proving 

such an allegation is complicated by the lack of available data. In 

particular, the Federal Reserve’s Regulation B prohibits financial 

institutions from requiring information on race and gender from applicants

for nonmortage credit products.7

 Some federal financial regulators have 

stated that removing the prohibition would allow them to better monitor 

and enforce laws prohibiting discrimination in lending. Some financial 

institutions, primarily commercial banks, said that they have developed 

strategies to serve minority- and women-owned businesses. These 

strategies include marketing existing financial products specifically to 

minority and women business owners. 

 6

U.S. Department of Commerce, MBDA, “Expanding Financing Opportunities for Minority 

Businesses” (2004). 

7

The Federal Reserve’s Regulation B implements the Equal Credit Opportunity Act (ECOA).

ECOA, 15 U.S.C. §§ 1691-1691f, makes it unlawful for a creditor to discriminate against an 

applicant in any aspect of a credit transaction on the basis of the applicant’s national 

origin, religion, sex, color, race, age (provided the applicant has the capacity to contract). 

Racial and gender information can be collected in two very limited circumstances, neither 

of which results in publicly available data regarding the race/ethnicity or gender of the 

bank’s nonmortgage credit applicants. 

Page 3 GAO-06-843T 
We defined the financial services industry to include the following sectors: Background 

• depository credit institutions, which include commercial banks, thrifts 

(savings and loan associations and savings banks), and credit unions; 

• holdings and trusts, which include investment trusts, investment 

companies, and holding companies; 

• nondepository credit institutions, which extend credit in the form of loans, 

include federally sponsored credit agencies, personal credit institutions, 

and mortgage bankers and brokers; 

• the securities sector, which is made up of a variety of firms and 

organizations (e.g., broker-dealers) that bring together buyers and sellers 

of securities and commodities, manage investments, and offer financial 

advice; and

• the insurance sector, including carriers and insurance agents, which 

provides protection against financial risks to policyholders in exchange for 

the payment of premiums. 

Additionally, the financial services industry is a major source of 

employment in the United States. According to the EEO-1 data, the 

financial services firms we reviewed for this testimony, which have 100 or

more staff, employed nearly 3 million people in 2004. Moreover, according 

to the U.S. Bureau of Labor Statistics, employment in management and 

professional positions in the financial services industry was expected to

grow at a rate of 1.2 percent annually through 2012. Finally, a recent U.S. 

Census Bureau report based on data from the 2002 Economic Census 

stated that, between 1997 and 2002, Hispanics in the United States opened 

new businesses at a rate three times faster than the national average.8

 8

U.S. Census Bureau, Survey of Business Owners: Hispanic-Owned Firms: 2002 (March

2006). 

Page 4 GAO-06-843T 
Overall EEO-1 data do not show substantial changes in diversity at the 

management level and suggest that certain financial sectors are more 

diverse at this level than others. Figure 1 shows that overall managementlevel representation by minorities increased from 11.1 percent to 15.5 

percent from 1993 through 2004. Specifically, African-Americans increased 

their representation from 5.6 percent to 6.6 percent, Asians from 2.5 

percent to 4.5 percent, Hispanics from 2.8 percent to 4.0 percent and

American Indians from 0.2 to 0.3 percent. Management-level 

representation by white women was largely unchanged at slightly more 

than one-third during the period, while representation by white men 

declined from 52.2 percent to 47.2 percent. 

EEO-1 data may actually overstate representation levels for minorities and 

white women in the most senior-level positions, such as Chief Executive

Officers of large investment firms or commercial banks, because the 

category that captures these positions—”officials and managers”—covers 

all management positions. Thus, this category includes lower level 

positions (e.g., assistant manager of a small bank branch) that may have a

higher representation of minorities and women. In 2007, EEOC plans to 

use a revised form for employers that divides this category into 

“executive/senior-level officers and managers” and “first/mid-level 

officials,” which could provide a more accurate picture of diversity among 

senior managers. 

Diversity in the 

Financial Services 

Industry at the 

Management Level 

Did Not Change 

Substantially between 

1993 and 2004 

Page 5 GAO-06-843T 
Figure 1: EEO-1 Data on Trends in Workforce Diversity in the Financial Services 

Industry at the Management Level by Racial/Ethnic Group and Gender (1993, 1998, 

2000, and 2004) 

Note: Percentages may not always add to 100 due to rounding. 

As shown in figure 2, EEO-1 data also show that the depository and 

nondepository credit sectors, as well as the insurance sector, were 

somewhat more diverse at the management level than the securities and 

holdings and trust sectors. In 2004, minorities held 19.9 percent of 

management-level positions in nondepository credit institutions, such as 

mortgage bankers and brokers, but 12.4 percent in holdings and trusts, 

such as investment companies. 

Percentage

Total white

Hispanic

White women

African-American

Total minority

White men

Total white

American Indian

Asian

88.9% % % % 86.9 84.5

Source: GAO analysis of EEOC data.

1993 1998 2000 2004

85.7

White women 36.7 37.9 37.8 37.4

White men 52.2

% %% %

49.0 48.0 47.2

Hispanic

African-American

American Indian

Asian

2.8

5.6

.2

2.5

4.0

6.6

.3

4.5

3.3

6.4

.2

3.2

3.7

6.8

Total minority 11.1 13.1 14.3 15.5

.3

3.6

0

20

40

60

80

100

Page 6 GAO-06-843T 
Figure 2: EEO-1 Data on Workforce Diversity in the Financial Services Industry at the Management Level by Sector (2004) 

Total officials

and managers

0

10

20

30

40

50

60

Depository

credit

institutions

Nondepository

credit

institutions

Security and

commodity

brokers

Holding Insurance

and trusts

Minority women

Minority men

White women

White men

7.0

37.4

47.2

8.4 9.4

36.1

44.0

10.5

8.7

27.4

57.5

6.4 5.4

40.8

46.3

7.5 6.2

35.3

52.3

6.2 7.7

38.2

44.0

10.1

Source: GAO analysis of EEOC dat.a

Percentage

Note: Percentages may not always add to 100 due to rounding. 

You also asked that we collect data on the accounting industry. According 

to the 2004 EEO-1 data, minorities held 13.5 percent, and white women 

held 32.4 percent of all “officials and managers” positions in the 

accounting industry. 

Minorities’ rapid growth as a percentage of the overall U.S. population and 

increased global competition have convinced some financial services firms 

that workforce diversity is a critical business strategy. Officials from the 

firms with whom we spoke said that their top leadership was committed to 

implementing workforce diversity initiatives, but noted that they faced 

challenges in making such initiatives work. In particular, they cited 

ongoing difficulties in recruiting and retaining minority candidates and in 

gaining employees’ “buy-in” for diversity initiatives, especially at the 

middle management level. 

Initiatives to Promote 

Workforce Diversity 

in the Financial 

Services Industry 

Face Challenges 

Page 7 GAO-06-843T 
Since the mid-1990s, some financial services firms have implemented a 

variety of initiatives designed to recruit and retain minority and women 

candidates to fill key positions. Officials from several banks said that they 

had developed scholarship and internship programs to encourage minority 

students to consider careers in banking. Some firms and trade 

organizations have also developed partnerships with groups that represent 

minority professionals and with local communities to recruit candidates 

through events such as conferences and career fairs. To help retain 

minorities and women, firms have established employee networks, 

mentoring programs, diversity training, and leadership and career 

development programs. 

Financial Services Firms 

Have Implemented a 

Variety of Diversity 

Initiatives 

Officials from some financial services firms we contacted, as well as 

industry studies, noted that that financial services firms’ senior managers 

were involved in diversity initiatives. For example, according to an official

from an investment bank, the head of the firm meets with every minority 

and female senior executive to discuss his or her career development. 

Officials from a few commercial banks said that the banks had established 

diversity “councils” of senior leaders to set the vision, strategy, and 

direction of diversity initiatives. A 2005 industry trade group study and 

some officials also noted that some companies were linking managers’ 

compensation with their progress in hiring, promoting, and retaining 

minority and women employees.9

A few firms have also developed performance indicators to measure 

progress in achieving diversity goals. These indicators include workforce 

representation, turnover, promotion of minority and women employees, 

and employee satisfaction survey responses. Officials from several 

financial services firms stated that measuring the results of diversity 

efforts over time was critical to the credibility of the initiatives and to 

justifying the investment in the resources such initiatives demanded. 

 9

Securities Industry Association, 2005 Report on Diversity Strategy, Development and

Demographics: Executive Summary (November 2005). 

Page 8 GAO-06-843T 
The financial services firms and trade organizations we contacted that had 

launched diversity initiatives cited a variety of challenges that may have

limited the success of their efforts. First, officials said that the industry 

faced ongoing challenges in recruiting minority and women candidates. 

According to industry officials, the industry lacks a critical mass of 

minority employees, especially at the senior levels, to serve as role models 

to attract and retain other minorities. Available data on minority students 

enrolled in Master of Business Administration (MBA) programs suggest 

that the pool of minorities, a source that may feed the “pipeline” for 

management-level positions within the financial services industry and 

other industries, is relatively small.10 In 2000, minorities accounted for 19 

percent of all students enrolled in MBA programs in accredited U.S. 

schools; in 2004, that student population had risen to 23 percent. Financial 

services firms compete for this relatively small pool not only with one 

another but also with firms from other industries. 

Several Challenges May 

Have Affected the Success 

of Workforce Diversity 

Initiatives in the Financial 

Services Industry 

Evidence suggests, however, that the financial services industry may not 

be fully leveraging its “internal” pipeline of minority and women 

employees for management-level positions. As shown in figure 3, there are 

job categories within the financial services industry that generally have 

more overall workforce diversity than the “official and managers” 

category, particularly among minorities. For example, minorities held 22 

percent of “professional” positions in the industry in 2004 as compared 

with 15 percent of “officials and managers” positions. According to a 

recent EEOC report, the professional category represented a possible 

pipeline of available management-level candidates.11 The EEOC states that 

the chances of minorities and women (white and minority combined) 

advancing from the professional category into management-level positions 

is lower when compared with white males. 

 10Association to Advance Collegiate Schools of Business. 

11See EEOC, Diversity in the Finance Industry (April 2006). 

Page 9 GAO-06-843T 
Figure 3: EEO-1 Data (Percentage) on Workforce Diversity in the Financial Services Industry by Position, Gender, and 

Racial/Ethnic Group (2004) 

Minority women

White women

Minority men

White men

Percentage

Source: GAO analysis of EEOC data.

0

10

20

30

40

50

60

Office and Other

clerical workers

Sales

workers

Officials and Professionals Technicians

managers

Total

30

43

9

18

47

37

7 8

37

42

9

13

41

35

13 11

47

29

12 12 13

51

8

28

41

25

21

13

Note: Percentages may not always add to 100 due to rounding. 

Many officials from financial services firms and industry trade groups 

agreed that retaining minority and women employees represented one of 

the biggest challenges to promoting workforce diversity. One reason they

cited is that the industry, as described previously, lacks a critical mass of 

minority men and women, particularly in senior-level positions, to serve as 

role models. Without a critical mass, the officials said that minority or 

women employees may lack the personal connections and access to 

informal networks that are often necessary to navigate an organization’s 

culture and advance their careers. For example, an official from a 

commercial bank we contacted said he learned from staff interviews that 

African-Americans believed that they were not considered for promotion 

as often as others partly because they were excluded from informal 

employee networks needed for promotion or to promote advancement. 

Page 10 GAO-06-843T 
In addition, some industry officials said that achieving “buy-in” from key 

employees such as middle managers could be challenging. Middle 

managers are particularly important to diversify institutions because they 

are often responsible for implementing key aspects of diversity initiatives 

and for explaining them to other employees. However, the officials said 

that middle managers may be focused on other aspects of their 

responsibilities, such as meeting financial performance targets, rather than 

the importance of implementing the organization’s diversity initiatives. 

Additionally, the officials said that implementing diversity initiatives 

represents a considerable cultural and organizational change for many 

middle managers and employees at all levels. An official from an 

investment bank told us that the bank has been reaching out to middle 

managers who oversee minority and women employees by, for example, 

instituting an “inclusive manager program.” 

Studies and reports, as well as interviews we conducted, suggest that 

minority- and women-owned businesses face challenges obtaining bank 

credit in conventional financial markets for several reasons, including 

business characteristics (e.g., small firm size) and the possibility that 

lenders may discriminate. Some business characteristics may also limit the 

ability of minority- and women-owned businesses to raise equity capital.

12

However, some financial institutions, primarily commercial banks, have 

recently begun marketing their loan products and offering technical 

assistance to minority- and women-owned businesses. 

Minority- and WomenOwned Businesses 

Often Face 

Difficulties in 

Obtaining Capital 

 12Equity capital can be raised from several sources including venture capital funds, private 

stock sales, or issuing stock in public financial markets. 

Page 11 GAO-06-843T 
Reports and other research, as well as interviews we conducted with 

commercial banks, including minority-owned banks and trade groups 

representing minority- and women-owned businesses, highlight some of 

the challenges these businesses may face in obtaining commercial bank 

credit. For example, many minority-owned businesses are in the retail and 

service sectors and may have few assets to offer as collateral.13 Further, 

many of these businesses are relatively young and may not have an 

established credit history.14 Many also are relatively small and often lack

technical expertise.15

Business Characteristics 

May Affect Minority- and 

Women-Owned 

Businesses’ Access to 

Commercial Loans and 

Equity Capital 

On the other hand, some studies suggest that lenders may discriminate 

against minority-owned businesses. We reviewed one study that found 

given comparable loan applications—by African-American and Hispanicowned firms and white-owned firms—the applications by the AfricanAmerican and Hispanic-owned firms were more likely to be denied.16

However, assessing such alleged discrimination may be complicated by

limitations in data availability. The Federal Reserve’s Regulation B, which 

implements the Equal Credit Opportunity Act, prohibits financial 

institutions from requiring information on race and gender from applicants

for nonmortgage credit products.17 Although the regulation was initially 

implemented to prevent such information from being used to discriminate 

against certain groups, some federal financial regulators have stated that 

 13U.S. Department of Commerce, Minority Business Development Agency, Expanding

Financing Opportunities for Minority Businesses (2004). U.S. Department of Commerce, 

Minority Business Development Agency, Keys to Minority Entrepreneurial Success,

Capital, Education, and Technology (September 2002). U.S. Department of Commerce, 

Minority Business Development Agency, State of Minority Business Enterprises: A 

Preliminary Overview of the 2002 Survey of Business Owners (September 2005). 

14U.S. Census Bureau, “2002 Survey of Business Owners, Women-Owned Firms” (Jan. 26,

2006). 

15U.S. Department of Commerce, Minority Business Development Agency, Keys to 

Minority Entrepreneurial Success, Capital, Education, and Technology (September 

2002). U.S. Small Business Administration, Office of Advocacy, Financing Patterns of 

Small Firms: Findings from the 1998 Survey of Small Business Finance (September 

2003). All small businesses may face challenges in obtaining credit due to the risks and 

costs involved in such lending. See Board of Governors of the Federal Reserve System,

Report to the Congress on the Availability of Credit to Small Businesses (September 

2002). 

16Blanchard, Lloyd, John Yinger, and Bo Zhao (2005), “Do Credit Market Barriers Exist for 

Minority and Women Entrepreneurs?” Syracuse University, Center for Policy Research 

Working Paper No. 74. 

17The Equal Credit Opportunity Act (ECOA), 15 U.S.C. §§ 1691-1691f. 

Page 12 GAO-06-843T 
removing the prohibition would allow them to better monitor and enforce 

laws prohibiting discrimination in lending. Likewise, at least one bank 

official noted that Regulation B limited the bank’s ability to measure the 

success of its efforts to provide financial services to minority groups. We 

note that under the Home Mortgage Disclosure Act (HMDA), lenders are

required to collect and report data on racial and gender characteristics of 

applicants for mortgage loans. Researchers have used the HMDA data to 

assess potential mortgage lending discrimination by financial institutions. 

Research also suggests that some business characteristics (e.g., limited 

technical expertise) that may affect the ability of many minority- and 

women-owned businesses to obtain bank credit, as discussed earlier, may

also limit their capacity to raise equity capital.18 Although venture capital

firms may not have traditionally invested in minority-owned businesses, a 

recent study suggests that firms that do focus on such entities can earn 

rates of return comparable to those earned on mainstream private equity 

investments.19 

Some Commercial Banks 

Have Developed Programs 

for Minority- and WomenOwned Businesses 

Officials from some financial institutions we contacted, primarily large 

commercial banks, told us that they are reaching out to minority- and 

women-owned businesses by marketing their financial products to them 

(including in different languages), establishing partnerships with relevant 

trade and community organizations, and providing technical assistance. 

For example, officials from some banks said that they educate potential 

business clients by providing technical assistance through financial 

workshops and seminars on various issues, such as developing a business 

plans and obtaining commercial bank loans. While these efforts take time 

and resources, the officials we spoke with indicated that their institutions 

recognize the benefits of tapping this growing segment of the market. 

Madam Chairwoman, this concludes my prepared statement. I would be 

pleased to respond to any questions you or other Members of the 

Subcommittee may have. 

 18Center for Women’s Business Research, Access to Capital: Where We’ve Been, Where 

We’re Going (March 2005). Brush, C. G.; Carter, N.; Gatewood, E.; Greene P. G.; and Hart, 

M. M. Gatekeepers of Venture Growth: A Diana Project Report on the Role and 

Participation of Women in the Venture Capital Industry (Oct. 20, 2001). 

19Bates, Timothy and William Bradford (2003). “Minorities and Venture Capital, A New 

Wave in American Business.” Kauffman Foundation. 

Page 13 GAO-06-843T 
For further information about this testimony, please contact Orice M. 

Williams on (202) 512-8678 or at williamso@gao.gov. Contact points for 

our Offices of Congressional Relations and Public Affairs may be found on

the last page of this statement. Individuals making key contributions to 

this testimony include Wesley M. Phillips, Assistant Director; Emily 

Chalmers; William Chatlos; Kimberly Cutright; Simin Ho; Marc Molino; 

Robert Pollard; LaSonya Roberts; and Bethany Widick. 

Page 14 GAO-06-843T 

Staff Contact and 

Acknowledgments 

(250300) 
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