Meredith Whitney for The Wall Street Journal: America's 'Unbanked' Masses

February 24th, 2012

The Wall Street Journal
By Meredith Whitney
February 24, 2012

Fewer Americans have access to traditional banking services such as checking accounts, consumer loans and credit cards than they did five years ago. Part of this has to do with the housing bust severely damaging the finances of U.S. households. But millions more have lost access to credit or essential banking services due to regulatory reforms imposed over the past four years.

When I first began researching this trend back in 2005, the number of “unbanked” Americans was closer to one in four. At the current rate, that number will reach one in three in the near future.

Excluding millions of Americans from traditional banking services is not an efficient means of commerce and will result in long-term negative consequences for our economy. The negatives include higher transaction costs, lower household savings, and the concentration of credit in the hands of the few—conditions more commonly associated with Third World countries.

Banks are partly to blame for the post credit-crisis shrinkage in banking services. They have not figured out a way to reprice consumer loans effectively in a post-securitization world. For decades, banks could underprice consumer loans (mortgage, home-equity and other personal loans) because they were subsidized with the high fees from securitizations. That all ended with the collapse of the subprime mortgage market.

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