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FDIC’s Economic Inclusion Strategy

Chairman Martin J. Gruenberg
 Speech, National Community Reinvestment Coalition   Video
April 4, 2024

Good morning. I would like to begin by thanking the National Community Reinvestment Coalition, and your President, Jesse Van Tol, for inviting me to take part in your Just Economy Conference. 

For over 30 years, the National Community Reinvestment Coalition has been a tireless advocate for economic opportunity in America. Through a range of community development activities at the local, state, regional, and national level, your 700 member organizations have made an enormous impact in improving the quality of life for millions of people in our country. 

In particular, you have been perhaps the leading voice for the Community Reinvestment Act, which since its enactment in 1977 has been the foundation of access to credit, investment, and basic banking services on a responsible basis for low- and moderate-income communities and communities of color in the United States.

The new CRA rule issued by the federal banking agencies adapts CRA to the changing nature of the banking business and strengthens its provisions to carry out its critically important public purpose. We are firmly committed to the support of the rule and believe it is entirely consistent with the statute.

I would like to take the opportunity this morning to talk about a subject that is a core objective of NCRC, CRA, and the FDIC – economic inclusion in the banking system. 

The FDIC is releasing today its new economic inclusion strategic plan to guide our efforts to expand access to the banking system to everyone who lives in the United States. The occasion of your Just Economy Conference seemed like an opportune moment to discuss this topic, which is so central to our common goals.

FDIC Commitment to Economic Inclusion

Federally insured bank accounts are fundamental to the ability of individuals and families to participate in and fully benefit from the opportunities created by our economy. Having a banking relationship provides households with the ability to securely and conveniently receive and hold funds, including through direct deposit. 

It also enables consumers to pay bills and make purchases with confidence, while benefiting from protections that guard against risks, such as those arising from unauthorized transactions. 

These and other protections—including, of course, FDIC insurance—are available to consumers automatically when they open a deposit account, by operation of law. They cannot be waived or eliminated in pursuit of other objectives. They are part and parcel of what it means to have a bank account.

Unbanked consumers, that is, those without an insured account, are not always assured of such protections when they turn outside the banking system. They also may incur costly fees associated with non-bank services such as check cashing and bill payment services. They may have difficulty accessing credit, or find it only available on unfavorable terms. Finally, those without bank accounts that hold cash at home may expose themselves and their families to risks—risks of theft, accidental loss or other misfortunes.

Unbanked consumers also miss out on important opportunities enjoyed by those in the banking system. A banking relationship allows consumers to gain access to savings accounts, establish credit and borrow to facilitate month-to-month needs, acquire key assets like a car, and make longer-term investments such as in homeownership or entrepreneurial pursuits. For many, a banking relationship is an important step toward achieving financial stability and securing a future for themselves and their families. More than 99 percent of households with a home loan have a bank account.1 This is not a coincidence.

Understanding the Challenge

Despite the advantages of banking relationships, not all members of the public have shared in these benefits. As a result, Congress tasked the FDIC in 2006 with responsibility for conducting relevant research on questions such as the size of the unbanked market and strategies for promoting economic inclusion. 

In doing so, the sponsor of the legislation offered a vision of a market in which “all major depository institutions will look at unbanked minority families as a business opportunity and aggressively attempt to include them in the conventional finance system.”2

To address this research mandate from Congress, the FDIC established its National Survey of Unbanked and Underbanked Households. Conducted every two years beginning in 2009, in partnership with the Census Bureau, this survey has been foundational. It measures household participation in the banking system and identifies opportunities to expand economic inclusion. It provides data not just at the national level, but also for all fifty states and dozens of larger metropolitan areas. Critically, its large sample size allows us to analyze how experiences vary across the population, and to break down banking access demographically. 

The initial surveys identified important challenges and provided an authoritative set of data to guide economic inclusion efforts. 

We found, for example, that in 2011, 8.2 percent of households were unbanked, lacking a checking or savings account at a federally insured institution. We also found that 20.1 percent of households were underbanked, meaning they had an account but also used non-bank products and services to meet basic financial needs. This latter measure helped demonstrate that banks had additional opportunities to meet the needs of established customers, to deepen their connection to the banking system. With 28 percent of households being unbanked or underbanked, the results revealed that many Americans were not being well served by the banking system. 

Adding to the overall concern, the survey revealed that when broken down demographically, unbanked rates were much higher for some: 21.3 percent for Black households, 20.4 percent for Hispanic households, 22.7 percent for American Indian or Alaska Native households, and 19.4 percent of households earning less than thirty-thousand dollars per year were unbanked, compared to 8.2 percent of the general population. In addition, 18.9 percent of working-age households with a disability were determined to be unbanked, as were 25.5 percent of single-parent households.

The survey has also served to provide a line of sight into the reasons households give for not holding a bank account. Common reasons have included not having enough money to meet minimum balance requirements, concerns about high and unpredictable fees, and a lack of trust in banks. 

FDIC Economic Inclusion Efforts

To address these challenges and guide its work, the FDIC established its first economic inclusion strategic plan in 2010.3 Among other initiatives, the plan specifically called for the development of a prototype of safe transactional accounts. It emphasized the importance of “affordable, easy to understand products” that were “not subject to unfair or unforeseen fees.”

In April 2012, the FDIC published a report of its Model Safe Accounts Pilot, detailing the positive experiences of financial institutions and consumers in a trial of products patterned off an FDIC model safe account template.4 These accounts were electronic, debit card-based accounts with low- or no minimum balance requirements, low or no monthly fees, and were structured to eliminate the risk that households would incur overdraft or insufficient funds fees.

While very few insured institutions offered such accounts at the time, they are, today, widely available. According to FDIC analysts, at least 340 banks are offering such accounts. In aggregate, these banks hold about two-thirds (66.0 percent) of all domestic deposits.5 

Data contributed by 35 of the banks offering these accounts have been collected and analyzed by the Federal Reserve Bank of St. Louis. Analysts have reported that more than 17 million of these accounts have been opened across 87 percent of U.S. zip codes, with more than $120 billion deposited into these accounts in 2022, alone.6 They also reported that 85 percent of accounts opened at large banks were for customers that were new to the institution.

A combination of four factors has been critical to the success of these accounts. First, these accounts are simple to understand, simple to use, and remove key risks of fees that many consumers had previously cited as barriers. Second, what is good for the customer has also proven good business for the bank. As multiple banks explained to the FDIC’s Advisory Committee on Economic Inclusion, improved customer experiences lowered the cost of servicing the accounts and improved customer relationships. Third, consumers have become less reliant on checks over time, and more easily perceive significant value in these accounts. Fourth, particularly with regard to unbanked populations, local networks of nonprofit organizations, financial institutions and public agencies across the country, commonly referred to as Bank-On coalitions, have worked diligently to certify that accounts meet national Bank-On standards and to connect consumers with them. Those standards, by the way, were modelled on -- and remain entirely consistent with -- the core principles of the FDIC’s Safe Account template.

The FDIC, for its part, has helped interested banks learn more about how these kinds of accounts might benefit their communities and to consider how they might go about offering such a product. It has also sought to make Americans aware of the opportunity to open these accounts. 

During the COVID-19 pandemic, for example, the FDIC partnered with the IRS to help consumers without bank accounts identify and open accounts designed to meet their needs. Many, it seems, were especially motivated to open an account to be able to receive public support payments in a secure and timely manner during the pandemic. In fact, our 2021 household survey revealed that one-third of all U.S. households that had recently become banked reported doing so in connection with an economic impact or similar payment. 

This finding has helped to highlight the potential advantages of prompting consumers to consider opening a bank account when they are anticipating a payment or other income, such as from a new job. We have come to think of such opportunities, in fact, as “bankable moments.” This is a lesson we have taken to heart. 

Last year, the FDIC worked with the Treasury Department to mail colorful inserts detailing the benefits of opening a bank account along with 6.2 million Federal checks already being sent to households. This partnership is continuing in 2024. And we believe that the message is getting through because we have experienced significant contemporaneous increases in visits to FDIC webpages containing information about how to open an account.

Taking stock of where we are today, I am pleased to note that over the decade ending in 2021, the unbanked rate fell by nearly half, from 8.2 to 4.5 percent. The decrease among populations that have historically had higher unbanked rates was pronounced. 

The Black household unbanked rate declined from 21.3 to 11.3 percent; the Hispanic rate declined from 20.4 to 9.3 percent; for those earning less than $30,000 per year the rate went from 19.4 to 13.5 percent; and for working-age households with a disability, the unbanked rate dropped from 18.9 to 14.8 percent. The unbanked rate for single-parent households fell from 25.5 to 14.9 percent. Finally, the results for American Indian and Alaska Native households were also encouraging. However, given the relatively small survey sample size for this group, we need to continue to monitor those results.7 In addition to these notable improvements in unbanked rates, we have also seen substantial decreases in use of the non-bank transaction and credit products that drive the survey’s underbanked rates. 

Many factors are no doubt influencing these trends. Certainly, the aggregate efforts of local coalitions working with consumers, financial institutions offering responsive products, and those of the FDIC and many aligned organizations have been important. 

I should also acknowledge that other developments, including historically low unemployment rates and the increased availability and use of mobile devices that can make banking more accessible and convenient, have also helped drive the unbanked rate down. 

As encouraging as these results have been, we are mindful that they are not assured going forward. While the design of these accounts should make them easier for households to sustain, any increase in unemployment from current historic lows will likely put upward pressure on the unbanked rate. 

In addition, consumers face an increasingly complex set of choices in the marketplace. These include some options from non-depository firms that, on the surface, may resemble banks, even if they lack certain protections and may not offer all of the benefits of a banking relationship. Finally, while banks themselves have benefited from offering accounts that have proven popular with consumers, the continued support of the leaders of these institutions will likely be important to ensure those accounts continue to be readily available. 

A New FDIC Economic Inclusion Strategic Plan

As I mentioned, today, the FDIC is releasing a new economic inclusion strategic plan to guide our efforts to expand and support consumers’ participation in the banking system. 

The plan seeks to help households use a banking relationship to achieve financial stability and a more secure financial future. It also expands on previous plans by specifically addressing the opportunity for the banking system to do more to contribute to the development of strong communities.

We continue to believe that ensuring all consumers have access to products and services from banks that are responsive to their needs is integral to the achievement of these objectives. The opening of an insured account helps households establish an “on-ramp” to the financial system and sets the stage for future financial success, including by establishing a positive credit history and making use of consumer credit from banks on a responsible basis. 

One promising recent development along these lines can be seen in small dollar loan programs being developed by some banks. 

These programs typically provide established accountholders with the opportunity to borrow small amounts of money at affordable rates and to repay them over a reasonable timeframe. It makes sense that banks would find it easiest to extend credit to accountholders since they have the benefit of being able to observe their income and financial management practices in account data. 

While credit is important, so too is savings. Yet, in response to a 2022 survey from the Federal Reserve, only “63 percent of adults said they would cover a hypothetical $400 emergency expense exclusively using cash or its equivalent”—and for 18 percent, “the largest expense they could cover with savings was under $100.”8 

To address these concerns, the FDIC’s new plan seeks to help households achieve financial stability through the establishment of positive credit histories and the use of consumer credit from banks along with insured savings accounts. 

And, to help households achieve longer-term financial security, the plan identifies mortgages and small business lending from banks as important opportunities to build household wealth. 

In perhaps the biggest change, the new plan specifically calls for the FDIC to take steps to encourage bank lending, investments, and services that support strong and healthy communities, including low- and moderate-income neighborhoods and other underserved communities. This would include, of course, community development lending and related investments with a broad range of objectives, including affordable housing, improved employment opportunities, and enhancing the resilience of communities to growing risks arising from climate change. While the FDIC has long sought to support banks’ community development efforts, the explicit connection to its economic inclusion work is new and entirely appropriate. 

Stated plainly, the plan recognizes that banks are unlikely to succeed in their efforts to build trusted relationships with households if they are otherwise neglecting to make investments that strengthen the communities in which those households live and work. 

The FDIC uses a variety of strategies to pursue these objectives. We conduct research to provide a common fact-based understanding of the challenges. Through our nationwide Community Affairs program staff, we perform outreach to bankers to provide resources and support so that they may consider how their institution can expand participation in the banking system and serve their entire communities. We produce financial education resources and communicate the benefits of having an insured account to consumers. Finally, we work with community-based organizations that share our vision of a banking system that is responsive to the needs of families and communities. 

Economic Inclusion and CRA

Before I conclude, I want to observe some of the ways in which the newly adopted Community Reinvestment Act rule would provide banks with the opportunity to receive credit for their efforts to expand economic inclusion. 

The rule would specifically recognize that consumers should have access to products and services that are affordable and responsive to their needs. The rule would help to clarify and expand recognition of a variety of community development activities. Among these are bank activities with and in support of community development financial institutions, minority depository institutions, and women’s depository institutions. These institutions have a particular role to play in expanding access to the banking system for underserved communities. 

A banking system that is responsive to the needs of consumers and communities, in these ways, is an inclusive system. 

It is a system that merits the public’s confidence and support and lays the groundwork for its own future success. 

Conclusion

In conclusion, the FDIC’s new economic inclusion strategic plan seeks to help consumers use banking relationships as a vehicle to establish financial stability, build wealth, and secure a financial future for themselves and their families. It also commits the FDIC to supporting bank efforts to strengthen communities through a range of community development activities. 

We recognize that the FDIC will not succeed with a go-it-alone approach. The support of other federal, state and local agencies, of community based organizations, local leaders, bankers, educators and others, is critical. 

Let me make a pitch here. If the outcomes we are seeking are aligned with your objectives, I invite you to contact an FDIC regional manager in our nationwide community affairs program to explore how we might work together. 

If you are developing or revisiting your own strategies and want to learn more about our approach to economic inclusion, consider visiting our website where you can read our new strategic plan, and engage our research and data. 

Finally, let me once again thank the National Community Reinvestment Coalition for all that you do. From my standpoint, it is a privilege to have the opportunity to speak to your annual conference today and to be inspired by your leadership.

Last Updated: April 4, 2024