Haven’t We Been Here Before?

FinReg21 | Banks face pressure to reach out to underserved as FDIC survey documents gap

Regulators will be bringing pressure on banks to make greater efforts to serve poorer communities after an FDIC survey showed that more than a quarter of U.S. households have little or no financial activity through banks.

The survey, conducted through the Census Bureau, found that 25.6 percent of the nation’s households – representing some 60 million adults – are “unbanked” or “underbanked” and rely on expensive non-bank services such as payday loans, check-cashing services, money orders or pawn shops to conduct their financial transactions.

Remember the CRU?

That was where the government regulators said banks needed to make more home loans to people that couldn’t afford to pay them back. They even created Fannie Mae and Freddie Mac to buy up all those loans, making them, in effect, Government insured loans. Fannie and Freddy then created bonds from these loans and sold them to the financial market. Because, hey, they were government loans, kind of.

In case, you have been liking an a cave somewhere allow me to refresh your memory. The easy loans fed a housing market that could not keep up and the prices of homes skyrocketed. As long as the prices kept rising people could roll over their unsustainable loans into different unsustainable loans. But when the bubble burst, as all bubbles do, they couldn’t keep up and defaulted. As the defaults spread they impacted the market and things started slowing down. As businesses were affected by the slowdown they cut workers, usually at the bottom which threw more people into default. This snowballed until we ended up where we are now.

So, the government is once again going to micromanage the bank’s business to force them to give services to people who have been denied these services by the fact that they haven’t bothered to sign up or use them. They certainly aren’t going to pay for them, so guess who is? That’s right, those of us who actually pay for and use the services.

And how long do you think it will take for this requirement will ‘mission-creep” back to making loans to people that can’t afford to pay them?

Not long, I think. A bureaucracy only exists as long as it expands, and it never goes away. Draw your own conclusions.

Leave a Reply

Your email address will not be published.