Remarks of
Martin J. Gruenberg, Vice Chairman,
FDIC; Alliance for Economic Inclusion Kick-off
Los Angeles, California
June 21, 2007
Good morning and thank you, Linda. I am very happy to be in Los Angeles this morning.
I would like to thank all of you for taking the time to be with us to kick-off the FDIC's
Alliance for Economic Inclusion (AEI) in the City of Los Angeles. We have an impressive
list of speakers with us today, including Sophia Heller from the Los Angeles Office of the
Mayor and Doug Kirkpatrick, Deputy Commissioner of the California State Banking
Department. I would also like to recognize the FDIC staff that has worked so hard to pull
together this event, including Bob Mooney, the FDIC's Acting Deputy Director for
Compliance and Consumer Protection and our San Francisco Community Affairs staff:
Lee Bowman, Linda Ortega, Bob Goff, Benjamin Hernandez, Adela Coronado, Lisa
Kanemoto, Jacqui Gordon, and Joannie Lyman for their hard work in pulling together
this event.
Economic Inclusion
I would like to begin by framing this issue in its broadest context. In many ways, access
to an account at a federally-insured institution is the starting point for economic
citizenship in the United States. Banks provide individuals with the opportunity to save,
borrow, invest, and build a credit record. Individuals who use banks have a higher level
of participation in consumer credit markets and, ultimately, housing markets. This, in
turn, can promote stable neighborhoods and better living conditions.
But the fact is that there are millions of Americans who do not have a bank account. We
don't know exactly what portion of the U.S. population is unbanked and underbanked,
but we do know that it is substantial. A recent study has estimated that there are 28
million unbanked people in the U.S. and another 45 million underserved who lack
adequate access to credit.1 The Federal Reserve has estimated that up to 10 percent of
American families are unbanked.2 Moreover, a disproportionate share of minorities are
unbanked – studies have shown that 46 percent of African Americans and 34 percent of
Hispanic Americans do not have an account at a federally-insured financial institution.3
It used to be that we were concerned about the practice of "redlining" by financial
institutions – drawing a red line around a neighborhood, often low and moderate-income
minority neighborhoods, and denying access to credit. The issue now, however, no
longer appears to be access to credit, but rather the cost and terms of credit. These
same neighborhoods have now become targets for high cost financial services
providers such as check cashers, payday lenders, wire transmitters, and subprime
mortgage lenders. These companies used to be relatively small and unsophisticated,
but today they have grown to be large, highly sophisticated and highly aggressive
Martin J. Gruenberg, Vice Chairman,
FDIC; Alliance for Economic Inclusion Kick-off
Los Angeles, California
June 21, 2007
Good morning and thank you, Linda. I am very happy to be in Los Angeles this morning.
I would like to thank all of you for taking the time to be with us to kick-off the FDIC's
Alliance for Economic Inclusion (AEI) in the City of Los Angeles. We have an impressive
list of speakers with us today, including Sophia Heller from the Los Angeles Office of the
Mayor and Doug Kirkpatrick, Deputy Commissioner of the California State Banking
Department. I would also like to recognize the FDIC staff that has worked so hard to pull
together this event, including Bob Mooney, the FDIC's Acting Deputy Director for
Compliance and Consumer Protection and our San Francisco Community Affairs staff:
Lee Bowman, Linda Ortega, Bob Goff, Benjamin Hernandez, Adela Coronado, Lisa
Kanemoto, Jacqui Gordon, and Joannie Lyman for their hard work in pulling together
this event.
Economic Inclusion
I would like to begin by framing this issue in its broadest context. In many ways, access
to an account at a federally-insured institution is the starting point for economic
citizenship in the United States. Banks provide individuals with the opportunity to save,
borrow, invest, and build a credit record. Individuals who use banks have a higher level
of participation in consumer credit markets and, ultimately, housing markets. This, in
turn, can promote stable neighborhoods and better living conditions.
But the fact is that there are millions of Americans who do not have a bank account. We
don't know exactly what portion of the U.S. population is unbanked and underbanked,
but we do know that it is substantial. A recent study has estimated that there are 28
million unbanked people in the U.S. and another 45 million underserved who lack
adequate access to credit.1 The Federal Reserve has estimated that up to 10 percent of
American families are unbanked.2 Moreover, a disproportionate share of minorities are
unbanked – studies have shown that 46 percent of African Americans and 34 percent of
Hispanic Americans do not have an account at a federally-insured financial institution.3
It used to be that we were concerned about the practice of "redlining" by financial
institutions – drawing a red line around a neighborhood, often low and moderate-income
minority neighborhoods, and denying access to credit. The issue now, however, no
longer appears to be access to credit, but rather the cost and terms of credit. These
same neighborhoods have now become targets for high cost financial services
providers such as check cashers, payday lenders, wire transmitters, and subprime
mortgage lenders. These companies used to be relatively small and unsophisticated,
but today they have grown to be large, highly sophisticated and highly aggressive
marketers of high cost financial services and products to these neighborhoods. They
have come to dominate the financial services markets in these neighborhoods.
One indication of this development is in the most recent Home Mortgage Disclosure Act
(HMDA) data released by the Federal Financial Institutions Financial Examination
Council (FFIEC). A 2006 Federal Reserve study relying on HMDA data from 2005 found
that 55 percent of blacks and 46 percent of Hispanics received so-called high cost
mortgages, defined as mortgages with interest rates that exceeded the Treasury rate by
3 percentage points.4 This compared to only 17 percent for non-Hispanic whites. The
study indicated that borrower related factors accounted for only one-fifth of this
disparity.
Another indication is in a Brookings Institution study published last year that compared
the prices paid by lower income families in urban neighborhoods for fifteen types of
consumer goods, including eight financial services such as home and car loans, check
cashing, payday loans, and remittance services.5 The study found that lower income
families in these neighborhoods pay higher prices for all fifteen goods, including the
eight financial services, than higher income families in suburban neighborhoods. There
is an urgent need for greater competition in these markets, particularly from insured
financial institutions – banks, thrifts, and credit unions – who may be able to offer
borrowers a wider range of lower cost, mainstream banking products. This would be of
great benefit to borrowers, and also offers significant potential market opportunities for
the financial institutions.
The FDIC's Economic Inclusion Initiatives
This issue of economic inclusion, greater competition, and access to the financial
mainstream is a top priority for the FDIC. Last year the Chairman of the FDIC, Sheila
Bair, announced the formation of an Advisory Committee on Economic Inclusion to
explore ways of bringing the unbanked into the financial mainstream. The members of
the Committee include bankers, regulators, consumer advocates, and academics.
Diana Taylor, the former New York State Superintendent of Banks, chairs the
Committee. The first meeting took place on March 28th and focused on affordable,
small-dollar loans as an alternative to high-cost payday lenders for underserved
communities.
The formation of the Committee coincided with the FDIC's start-up of the Alliance for
Economic Inclusion, the FDIC's new national initiative to form a network of local
coalitions around the country charged with helping underserved communities gain
access to federally insured institutions. AEI is focusing on unbanked and underserved
populations in nine markets across the country. These markets, which were identified
through extensive market and demographic research, include the Black Belt area of
Alabama; Boston, Massachusetts; Chicago, Illinois; Austin and Houston, Texas; Kansas
City, Missouri; the Gulf Coast areas of Louisiana and Mississippi; Wilmington,
Delaware; Baltimore, Maryland; and here in Los Angeles, California.
have come to dominate the financial services markets in these neighborhoods.
One indication of this development is in the most recent Home Mortgage Disclosure Act
(HMDA) data released by the Federal Financial Institutions Financial Examination
Council (FFIEC). A 2006 Federal Reserve study relying on HMDA data from 2005 found
that 55 percent of blacks and 46 percent of Hispanics received so-called high cost
mortgages, defined as mortgages with interest rates that exceeded the Treasury rate by
3 percentage points.4 This compared to only 17 percent for non-Hispanic whites. The
study indicated that borrower related factors accounted for only one-fifth of this
disparity.
Another indication is in a Brookings Institution study published last year that compared
the prices paid by lower income families in urban neighborhoods for fifteen types of
consumer goods, including eight financial services such as home and car loans, check
cashing, payday loans, and remittance services.5 The study found that lower income
families in these neighborhoods pay higher prices for all fifteen goods, including the
eight financial services, than higher income families in suburban neighborhoods. There
is an urgent need for greater competition in these markets, particularly from insured
financial institutions – banks, thrifts, and credit unions – who may be able to offer
borrowers a wider range of lower cost, mainstream banking products. This would be of
great benefit to borrowers, and also offers significant potential market opportunities for
the financial institutions.
The FDIC's Economic Inclusion Initiatives
This issue of economic inclusion, greater competition, and access to the financial
mainstream is a top priority for the FDIC. Last year the Chairman of the FDIC, Sheila
Bair, announced the formation of an Advisory Committee on Economic Inclusion to
explore ways of bringing the unbanked into the financial mainstream. The members of
the Committee include bankers, regulators, consumer advocates, and academics.
Diana Taylor, the former New York State Superintendent of Banks, chairs the
Committee. The first meeting took place on March 28th and focused on affordable,
small-dollar loans as an alternative to high-cost payday lenders for underserved
communities.
The formation of the Committee coincided with the FDIC's start-up of the Alliance for
Economic Inclusion, the FDIC's new national initiative to form a network of local
coalitions around the country charged with helping underserved communities gain
access to federally insured institutions. AEI is focusing on unbanked and underserved
populations in nine markets across the country. These markets, which were identified
through extensive market and demographic research, include the Black Belt area of
Alabama; Boston, Massachusetts; Chicago, Illinois; Austin and Houston, Texas; Kansas
City, Missouri; the Gulf Coast areas of Louisiana and Mississippi; Wilmington,
Delaware; Baltimore, Maryland; and here in Los Angeles, California.