Tag Archives: banking

Banking On The Postal Service

The Roosevelt Institute–named for FDR–has a project it calls “the next New Deal.” One of its recommendations takes a hard look at a proposal that has been floating around for a while–allowing the Post Office to offer banking services.

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 in today’s economy. Without access to basic banking services, such as checking and savings accounts or small loans, consumers are vulnerable
to a host of financial abuses. 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. In a new report co-published with the Samuel DuBois Cook Center on Social Equity at Duke University, Thomas Herndon and Mark Paul argue for the public provision of household financial services.

Among the referenced “host of abuses” are payday lenders and other predatory operations, offering money to people who are desperate for cash to meet a pressing and/or unexpected need at obscene rates of interest.

Allowing the Post Office to offer banking services would make those services available in locations that bank branches no longer serve, and would allow people with very limited means to access  basic financial tools that most of us take for granted: checking and savings accounts, check cashing services, and the ability to have direct deposit for Social Security and payroll checks.  The Post Office would also lend money–at reasonable rates–via small loans, auto loans, and mortgages.

As I noted, adding banking to the services the Post Office currently provides has been proposed before.  I always thought it was a good idea (although for some reason, the banks disagreed….)The Roosevelt proposal, however, adds an interesting argument to the case for Postal banking, one I had not previously encountered.

Roosevelt’s proposal for banking through the Postal Service argues that in addition to serving a growing public need, having a public bank would allow the federal government to monitor and manage the country’s online financial services marketplace.

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, fostering 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.

If we had an administration and Congress that was operating in the public interest, this proposal would at the very least get serious consideration. But of course, we don’t have a functioning government right now, let alone people in public office to whom we might affix the label “statesmen.”

The Age of the Bankster

Remember Mr. Potter, the banker in “It’s a Wonderful Life”? He wasn’t exactly a paragon. In fact, it wouldn’t surprise me to learn that his character reflected how people of that era viewed their local banks and bankers.

Potter-like or not, however, bankers used to live in their communities and tended to have a pretty accurate picture of their needs, not to mention the credit-worthiness of the merchants and working folks who made up those communities.  (I grew up in a small Indiana town, and remember our local bank president with some affection; if I was overdrawn, he’d just call my father, who would transfer some money into my account. No embarrassing surprises, no fees. Just a parental lecture.)

So this report is troubling.

Here’s a statistic that ought to alarm anyone interested in rebuilding local economies and redirecting the flow of capital away from Wall Street and toward more productive ends: Over the last seven years, one of every four community banks has disappeared. We have 1,971 fewer of these small, local financial institutions today than at the beginning of 2008. Some 500 failed outright, with the Federal Deposit Insurance Corporation (FDIC) stepping in to pay their depositors. Most of the rest were acquired and absorbed into bigger banks….

In 1995, megabanks—giant banks with more than $100 billion in assets (in 2010 dollars)—controlled 17 percent of all banking assets.

By 2005, their share had reached 41 percent. Today, it is a staggering 59 percent. Meanwhile, the share of the market held by community banks and credit unions—local institutions with less than $1 billion in assets—plummeted from 27 percent to 11 percent. You can watch this transformation unfold in our 90-second video, which shows how four massive banks—Bank of America, JPMorgan Chase, Citigroup, and Wells Fargo—have come to dominate the sector, each growing larger than all of the nation’s community banks put together.

Whatever one’s opinion of the bank shenanigans that precipitated the Great Recession, of “too big to fail,” or Dodd-Frank–whether or not you agree with Elizabeth Warren about the need for additional financial regulation–concentrations of power of this magnitude are cause for concern.

When that power is concentrated in large national banks removed from community relationships and concerns, the result is more foreclosures and fewer small business loans.

But perhaps the most important reason to treat the decline of community banks as a national crisis is that, while megabanks devote much of their capacity to activities that enrich their own bottom line, very often at the expense of the broader economy, local banks are doing the real work of financing businesses and other productive investments that create jobs and improve our well-being….

 While credit unions and small and mid-sized banks account for only 24 percent of all banking assets, they supply 60 percent of lending for small businesses.

The inverse is true of megabanks: they control 59 percent of the industry’s asset, but provide only 23 percent of small business loans. Given how much ground these giant banks have gained over local banks in the last seven years, it’s not hard to understand why small business lending has continued to shrink even as the economy has recovered.

Sometimes, bigger is better. Sometimes, it most definitely is not.

It Really Sucks to be Poor

It costs a lot to be poor. Just a few examples:

A recent report released by the Office of the Inspector General (OIG) of the U.S. Postal Service reports that 68 million Americans — more than a quarter of all U.S. households – have no checking or savings accounts.

How do people get along in a society where payments are made by check, or increasingly, electronic transfer? How do the (growing numbers of) people scraping along paycheck to paycheck access short-term loans when they hit a rough spot?

Evidently, by spending a lot more than the rest of us.

According to the report, these households collectively spent about $89 billion in 2012 on interest and fees for non-bank financial services like payday loans and check cashing. That works out to an average of $2,412 per household. The average underserved household spends an astonishing 10 percent of its annual income on interest and fees — about the same amount they spend on food.

As Senator Elizabeth Warren wrote in a column commenting on the report, “The poor pay more, and that’s one of the reasons people get trapped at the bottom of the economic ladder.” Poor people disproportionately rely on the check-cashing stores, pawnshops, payday lenders, and other predatory financial services that took customers for $89 billion in interest and fees in 2012.

But poor people have to contend with more than just predatory lending; they have fewer options across the board.

A few days ago, I wrote about the connection between poverty and marriage; it appears that despite the undeniable correlation between the two, we had the cause and effect backward. Poverty prevents many poor single moms from marrying in the first place. Subsequently, I found research (from professors of psychology and and organizational management) demonstrating that poverty also makes it harder for poor couples who are married to stay that way.

The problem is not that poor people fail to appreciate the importance of marriage, nor is it that poor and wealthy Americans differ in which factors they believe are important in a good marriage. The problem is that the same trends that have exacerbated inequality since 1980 — unemployment, juggling multiple jobs and so on — have also made it increasingly difficult for less wealthy Americans to invest the time and other resources needed to sustain a strong marital bond.

Poor people divorce at a rate that is thirty percent higher than their wealthier peers, with all of the emotional and financial distress that divorce brings in its wake.

Back in 2001, Barbara Ehrenreich wrote Nickeled and Dimed: On (Not) Getting Along in America, in which she documented the difficulties faced by low wage workers–  the added costs for shelter (the poor often have to spend much more on “rent by the week” fleabags than they would pay to rent a decent apartment because they can’t afford the security deposit and first-and-last month rent payments) and food (the poor often live in “food deserts” and have to buy food that is both more expensive and less healthy).

Let’s not even get into medical and dental care. That’s a subject for an entirely separate diatribe. (Folks who can’t afford regular, preventive care end up very sick in the ER, costing everyone more money.)

If we really expect poor people to “pull themselves up by their bootstraps,” maybe we should help them afford the bootstraps.