New Report: U.S. Economy Needs a Public Option for Finance

Leading Progressive Think Tank Argues a Public Banking Option Necessary to Meet the Needs of Households and Communities, Improve Entire Sector

NEW YORK, NY – In a new report, the Roosevelt Institute calls for the establishment of an alternative option to the currently privatized financial sector. The report, A Public Option as a Mode of Regulation for Household Financial Services in the United States, co-authored by Roosevelt Institute Fellow Mark Paul and Loyola Marymount University Assistant Professor Thomas Herndon, outlines why a new approach to household financial services is necessary and how it could be structured.

The report documents that a large segment of America today is badly served by the traditional financial sector, with 19.9 percent of households being under-banked. A household is deemed under-banked when it either has no access to a checking or savings account at an insured financial institution or has such unreliable access to these entities that it must rely on predatory, high-cost alternatives like payday lenders and pawnshop loans. With basic access to the financial sector a pre-requisite for full participation in the 21st century economy, these exclusions effectively leave nearly one in five households economically stranded. Communities of color are disproportionately harmed by these exclusions.

To ameliorate this economic divide, the report advocates the creation of a public option for finance in which the U.S. federal government would establish a public bank that provides basic transaction services and consumer credit. In addition to meeting the immediate needs of the under-banked, this approach would have the added benefit of setting a new baseline standard for conduct and practices of the entire financial sector. In effect, it would be a bottom-up regulatory tool based on a new and improved floor in how banks can operate and would thus encourage healthy competition in the market.

“In America, it is really expensive to be poor, and our current approach to banking reinforces this harmful dynamic,” said Mark Paul, Fellow at the Roosevelt Institute and co-author of the report. “A public option for banking would empower millions of families by giving them a foothold of financial stability. It would also make it much harder for private-sector banks to continue getting away with abusive practices like excessive fees. In one major restructuring of finance, this public option would make our economy more inclusive and bring about a healthy, constructive dose of true competition.”

“Imagine a life with no direct deposit, no visits to the ATM, and no auto-pay on the monthly bills you’d rather forget,” said Thomas Herndon, co-author of the report. “These hardships are just a snapshot of what it’s like to be unbanked—a challenging reality for millions of people in the United States. During the New Deal, this country helped offset the failures of the private banking industry by creating a new set of regulations and public alternatives. By walking away from that progressive spirit and commitment, we ended up with the dysfunctional and exclusionary economy we see today. It’s past time for policymakers to act bold and meet this challenge head-on.”

For years, the Roosevelt Institute has been a leading voice calling for an overhaul of the U.S. banking industry and the need for these changes to bring about a more equitable, broadly prosperous economy. In 2016, the Institute released Untamed: How to Check Corporate, Financial, and Monopoly Power. Paul has contributed to the Institute’s research on how new rules would bring about a better economy. His recent report Don’t Fear the Robots: Why Automation Doesn’t Mean the End of Work was covered in The New York Times and Politico. Last year, Herndon released Liar’s Loans, Mortgage Fraud, and the Great Recession, which documented fraud and consumer protection abuses in the securitized mortgage industry.

About the Roosevelt Institute

Until the rules work for every American, they’re not working. The Roosevelt Institute asks: what does a better society look like? Armed with a bold vision for the future, we push the economic and social debate forward. We believe that those at the top hold too much power and wealth, and that our economy will be stronger when that changes. Ultimately, we want our work to move the country toward a new economic and political system: one built by many for the good of all.

It takes all of us to rewrite the rules. From emerging leaders to Nobel laureate economists, we’ve built a network of thousands. At Roosevelt, we make influencers more thoughtful and thinkers more influential. We also celebrate—and are inspired by—those whose work embodies the values of both Franklin and Eleanor Roosevelt and carries their vision forward today.