What’s the issue?
Approximately 5.9 million American households—4.5 percent—are unbanked, meaning they do not currently have a checking or savings account with a financial institution. In order to reach the unbanked and bring them into the banking system, some members of Congress have proposed allowing the Federal Reserve to offer government subsidized bank accounts opened and serviced by banks with more than $10 billion and assets through the U.S. Postal Service. The proposal would have any funds deposited using these accounts flow directly to the Federal Reserve and would not be on the bank’s books that opened and services the customer. Helping more Americans gain access to the banking system is a critical effort, but FedAccounts and postal banking will not serve consumers as well as other options that do not rely on public delivery of financial services.
How does this affect consumers?
- If the Federal Reserve were to offer deposit accounts through banks at no cost, it would draw deposits from existing banks, thereby decreasing the amount of funding available to make loans to consumers. That could mean local banks would have less financing available to support economic growth in their communities.
- Postal Service bank accounts also wouldn’t allow consumers to tap into a system that provides multiple options for meeting financial needs beyond just a bank account. Postal accounts wouldn’t have a full menu of financial services for consumers, such as loans and other credit options.
- The Postal Service and the Federal Reserve are not designed to be retail banking institutions. Having them act together as a consumer-facing bank raises serious regulatory and consumer protection questions—potentially leaving consumers less protected than they would be at a regulated financial institution.
What can policymakers do?
We can all agree on the value of helping more Americans get connected to the banking system. But using the banks to open accounts on behalf of the Federal Reserve or using the Postal Service as a bank isn’t the answer. Congress should oppose such efforts and instead work with existing financial institutions to support programs that bring more people into the banking system. These programs include Bank On, an initiative of the Cities for Financial Empowerment Fund, which is working to bring more people into the banking system through low-or-no-fee certified bank accounts.