By Karen Petrou
- Economic inequality and ultra-low interest rates create a vicious cycle in which rates drive down savings, financial intermediation becomes less profitable, unequal households have still more difficulty preserving income and accumulating wealth, banks drop equality-essential services, consumers are made still more unequal, and it all starts all over again.
- Breaking this cycle requires hard decisions about which retail-banking services genuinely enhance economic equality and quickly developing effective, measurable delivery channels to promote widespread adoption.
- There is no shortage of commitments from high-level federal officials supporting equitable finance; what’s missing are specific, near-term action steps.
- This post thus provides a step-by-step roadmap for quick public- and private-sector innovation, regulation, and inclusion.
Almost a decade to the day after the “Occupy Wall Street” movement crystalized the populist politics that now characterizes U.S. debate, the Acting Comptroller of the Currency announced that his agency’s top priority is reducing inequality. This echoes the Biden Administration’s emphasis on equality and racial equity, but all of these high-minded goals are more hortatory than clear directives. They are thus unlikely to advance equitable banking, exacerbating not just economic inequality, but also America’s discontent and resulting disfunction. Reducing economic inequality is clearly essential, with banks and other financial companies sure to face mandates or even public-finance competitors if vital needs are not quickly and equitably met.
Continue reading “Equality Banking: A Roadmap”
By Karen Petrou
On July 18, the Economic Policy Subcommittee of the U.S. Senate Banking Committee turned its attention from the panel’s usual agenda to an unusual hearing on the challenges posed by U.S. economic inequality and what Congress might actually do about them. For the first time, we saw a shared belief by senators on both sides of the aisle and diverse witnesses that, over the past two decades, Americans have become mired in the income and wealth into which they are born. This isn’t exactly a news flash – see our prior blog posts on how unequal America has become and our most recent one on the dearth of public resources with which to counter fierce economic downdrafts. However, it isn’t just that senators finally discovered inequality – it’s that the outline of a bipartisan response took shape. Thus, for all the difficulty in Congress doing anything about even something as critical as economic inequality, the session was a break-out moment. Continue reading “2020’s Equality Policies 101”
After we last year proposed “Equality Banks,” ideas flooded in on possible charters. We also heard from those who so distrust any venture involving private finance that they believe only a public bank suffices to ensure fair delivery of equality-essential deposit, loan, and payment products. In this blog post, we build on prior work to lay out an array of charter options suitable for different types of Equality Banks owned by different types of financial or private investors. We reiterate our worries about public banks, adding to our prior evaluation of state and municipal efforts with an analysis of “low-income” credit unions and of the only equality-focused federal public bank to date. Each of these well-intentioned initiatives in fact made U.S. inequality a little bit worse, providing important lessons as progressive Democrats ready a raft of proposals not only to craft public banks, but also even to make the Postal Service or Federal Reserve become one. Continue reading “More Ways to Make an Equality Bank Make a Difference”
By Karen Petrou
In a blog post this summer, we assessed the history of U.S. public banks over three centuries. We concluded that, “The best way to ensure that financial intermediation advances social welfare is to define a carefully-constrained charter, mandate transparent limits on self-dealing up front, and ensure that the bank is fit for purpose under reasonable rules that ensure long-term profit in concert with effective public service. Public subsidies to support public service make sense, but only when sufficient regulation and private-sector discipline constrain the natural self-serving instincts of all-too-many politicians.” Maybe so, but sizeable minorities of voters this November said that they so distrust private banks that they want a public alternative no matter the controls that might apply. In a blue-wave mood, federal legislators are listening. Continue reading “Public Banking Under a Blue Wave”
By Federal Financial Analytics
In remarks on Tuesday, Karen Petrou will lay out two reasons why post-crisis financial regulation makes America less equal: rules are is aligned with real-world business incentives and capital standards unduly penalize equality-critical lending. Basing her views on Federal Reserve research, Petrou focuses on the Durbin Amendment, qualified-mortgage standards, small-dollar/short-term lending, and subprime mortgages. Continue reading “The Inequality Under-Belly of “Sound” Consumer Finance”