WASHINGTON (7/5/11)--Citing an economic crisis that has left 13.9 million Americans unemployed and another 10 million people working less than they want to or giving up looking for work, Federal Reserve Governor Sarah Bloom Raskin last week called for policymakers and financial institutions to help more people increase their incomes and net worth through innovative financial services. Raskin spoke Wednesday at "Rebuilding the Road to Financial Stability," which was co-sponsored by the New America Foundation, the Congressional Savings and Ownership Caucus, and the Center for Financial Security at the University of Wisconsin-Madison. She asserted that broad financial inclusion “bolsters American consumption and savings, which drives macroeconomic growth.” In contrast, the recession and its aftermath have hit the poorest families hardest because they lacked the assets to ease the pain of wage cuts, job loss, and declining home values that have dragged the economy down. An 18% decline in net worth among families in the bottom fifth of income distribution between 2007 and 2009 fuels an inequality that “is destabilizing and undermines the ability of the economy to grow sustainably and efficiently," Raskin said. "It is associated with increases in crime, profound strains on households, lower savings rates, poorer health outcomes, and diminished levels of trust in people and institutions.” The solution, she said, is providing low- and moderate-income Americans safe and affordable access to the tools of economic participation. These include affordable methods to cash checks, receive deposits, pay bills, save and borrow for emergencies and goals, and pay without cash. However, between 13% and 25% of families earning less than $30,000 are unbanked. And it’s imperative that more appealing financial tools be created to overcome high levels of distrust of financial institutions, Raskin said. She highlighted some opportunities for financial product and service innovation that would improve financial inclusion:
* New technology to open up access to the unbanked through relatively inexpensive mobile financial services; * Prepaid cards to combine the features of debit cards and checking accounts, perhaps with the incentive of an early bill payment discount automatically deposited in a savings account; and * Partnerships among credit unions, banks, local governments, and non-profits to deliver low-cost financial services such as free checking.
With innovation, an engaged regulatory system would watch over product developments that threaten economic stability, Raskin promised. “It is incumbent upon regulators to ensure that these products and services are safe, affordable, transparent, and easy to understand, regardless of the provider. In some cases, regulators may need to ban products that are inherently unfair or deceptive,” she concluded.