Authors: Thomas Herndon and Mark Paul
Executive Summary: To foster a more inclusive and accessible economy and society for all communities in the U.S., the public provision of banking goods and services by the government is an important— and bold—option to consider. Banks today are increasingly consolidating branch locations, while also moving away from low-cost financial services to high-profit activities, leaving marginalized Americans underserved and left behind. Without access to basic banking services, such as checking and savings accounts or small loans, consumers are vulnerable to a host of financial abuses. In response, this paper argues for the public provision of household financial services.
In particular, we argue for a public banking option that would directly compete with the outsized (and often predatory) power of the private household financial services sector. Such an option would have two primary components. First, the federal government would directly provide households with basic transaction services and consumer credit. This would ensure that all communities have access to basic financial tools, such as checking and savings accounts, check cashing, direct deposit, and online banking, as well as to small loans, auto loans, and mortgages.
Second, the public bank would manage an online financial services marketplace, creating an environment where public and private financial goods would directly compete alongside each other. This second component would serve as a powerful regulatory tool by allowing the government to condition sellers’ access to the marketplace based on certain consumer safety standards. Consumers could also rate and review sellers, allowing easier detection of consumer abuses. A public banking option structured with these two components would create the financial infrastructure required for universal service, while also preventing consumer financial protection abuses through public-private competition.
Key Findings
- Nearly 27 percent of U.S. households are unbanked or underbanked. But these numbers are worse for the most marginalized: Nearly half (49.1 percent) of households whose head does not have a high school degree are unbanked or underbanked; similarly, households whose income is $30,000 or under being financially excluded at a rate of 42.1 percent.
- Black households are nearly six times more likely to be unbanked than white households, while Hispanic households are nearly five times more likely to be unbanked.
- Even when the analysis is restricted to households with the greatest resources-those who own a home, have a college degree, and have incomes above $75,000-the data still indicates that black households are 2.5 times more likely to be unbanked and underbanked than their white peers.
