WASHINGTON — In remarks at the 2023 Bank On National Conference, Chairman of the Federal Deposit Insurance Corp. Martin J. Gruenberg said recent bank failures did not damage the credibility of his agency or its deposit insurance coverage. He also said this year’s historic bank failures had little impact on banking access for low and moderate income families — the demographic BankOn works to connect with safe and affordable banking products that meet elevated consumer protection standards.
“99% of all bank accounts in the United States are in an insured depository institution…it’s really the best place to keep your money, particularly in a time of economic uncertainty,” he said. “Insured deposits have continued to grow over this period…I think the basic confidence of the public in deposit insurance has really not been shaken.”
As consumer-facing financial institutions increasingly interact with customers online, Gruenberg said it is crucial to regulate mobile banking platforms like a “digital teller window” so consumers clearly understand which institutions are banks, and when their money is FDIC insured.
“An increasingly complex marketplace for financial services may make it harder for consumers to perceive the value of banking relationships, or even to distinguish banks from non banks,” he said.
Citing his agency’s 2021 FDIC National Survey of Unbanked and Underbanked Households, he said the number of unbanked American households has markedly decreased in recent years. According to the survey, roughly 4.5% of households were unbanked in 2021 — down from 8.2% the previous year — meaning the number of families that lacked an account at an insured depository institution has nearly halved over a decade.
“The share of households using non-bank check cashing has now fallen by half over the prior four years, from 6.4% to 3.2%,” he noted. “The data also revealed meaningful decreases in the use of non-bank consumer credit products that households may turn to for small amounts of money, which is borrowed from pawn shops, payday lenders, or auto title lenders.”
While the 2021 survey demonstrates the agency’s inclusion efforts have made real progress, such aggregate results also mask stark demographic disparities, with marginalized groups struggling far more to access banking according to a number of metrics, Gruenberg said.
“While the unbanked rate among the white households is 2.1% in the latest survey, unbanked rates among black and Hispanic households, respectively, were 11.3% and 9.3%, four to five times” the rate of white households, he said.
While race is just one area where disparities appear, he argued racial disparities in households’ ability to access banking services are substantial and persist regardless of which income bracket is examined.
“These gaps cannot be understood as a simple product of differences in income,” he said. “At every income level tracked in the survey the unbanked rates of Black and Hispanic households exceeded those of white households.”
But according to the FDIC Chairman, race was not the only factor affecting a consumer’s banking access. Single-mother-led households, those headed by working age individuals with a disability and those earning less than $30,000 a year were all significantly more likely to be unbanked.
The survey has also helped bring to life, he says, the extent to which households increasingly are turning to online services, where the distinctions between banks and nonbanks are less clear. He says half of Americans use mobile nonbank products — payment apps — that receive and store money. For FDIC, this raises concerns about the potential that companies may misrepresent deposit insurance coverage, falsely juxtaposing their products alongside the FDIC logo, for example, undermining the agency’s historic credibility.
Gruenberg noted that the FDIC has taken action against more than 85 entities for misrepresenting the nature or availability of deposit insurance on their products in the last year. He indicated his agency has no plans to stop, saying it’s fundamental that consumers receive accurate and complete information about insured accounts. He singled out crypto firms and imitation banks — or shadow banks — as common offenders.
“In some instances, these firms have made misleading claims in connection with crypto assets, while others have carefully developed fraudulent websites that trick consumers into believing they were doing business with the bank. We take this stuff personally,” he said.
“Some non-bank providers, service providers are eager for the association with deposit insurance without actually offering insurance,” he warned. “That is — by the way, any misrepresentation is — against the law. And as we learn about it, we will take action in regard to it. We have significant enforcement authorities that we can bring to bear.”
