Opinion | It’s time to end the Unbanking crisis

Bolstering the social security net is becoming more of a priority for the federal government.


Raquele Decker

Photo Illustration by Raquele Decker.

Shahab Khan, Opinions Columnist

The predatory policies of banks like Lehman Brothers, CitiGroup, and JP Morgan Chase contributed to one of the largest financial crises as millions of people were given loans that they possibly could not have paid back.

During times of hardship, these banks often close or restrict accounts for struggling individuals, leading to a rise in the amount of people who are under or unbanked.

However, a niche idea has been gaining traction in policy circles — universal bank accounts.

These universal bank accounts, also known as Fed Accounts, would be a bank account that individuals can open with the Federal Reserve. This would go a long way in alleviating poverty in Iowa.

The number of unbanked or underbanked households in Iowa had steadily fallen in these past few years thanks to the pre-pandemic economic boom.

As everyone knows by now, those days are long gone.

While we do not have FDIC data on under or unbanked households for 2020, there is enough evidence to show that the rate under or unbanked households increases substantially after a recession.

In 2013, during the peak of the long economic recovery following the Great Recession, an estimated 18.9 percent of Iowa households were under or unbanked.

These households tended to have lower incomes, less education, or have members of a marginalized community.

A report at the time shows just how perilous the crisis was for under or unbanked Iowans as many turned to predatory financial services that charged exuberant interest rates on loans taken out.

Living under or unbanked is extremely difficult and causes financial hardship for families especially during a recession.

It does not have to be like this.

A universal bank account would solve the problems that under or unbanked Americans are facing by promoting financial inclusion as all Americans would be able to deposit checks, accept direct deposits, or pay bills through a universal banking system.

The accounts would also permanently remain open, meaning that there would be no minimum account balance.

Furthermore, Fed Accounts can help streamline and update our welfare state for the 21st century.

Unemployment checks, stimulus checks, and social security payments being sent through the mail, in the past, has led to some people’s payments from the government getting delayed during a critical time when people need the extra money.

Fed Accounts could eliminate these delays as the federal government could electronically deposit payments into people’s accounts instantly.

Before you call me a socialist, I am not proposing we get rid of the commercial banking industry. The Federal Reserve should not provide all the services that a commercial bank provides as it should only focus on the three services that I mentioned earlier.

While our financial system isn’t perfect, it does not need a massive overhaul, just some tweaks.

The era of “big government” is finally over.

The past few months have shown that now is the time for us to implement big policy initiatives that can improve the safety net and help the poorest of Americans.

Providing everyone with a bank account with the Federal Reserve would go a long way in making it easier to protect our poorest Iowans from predatory practices in the commercial finance industry.

Columns reflect the opinions of the authors and are not necessarily those of the Editorial Board, The Daily Iowan, or other organizations in which the author may be involved.