Martin Gruenberg

Video: FDIC Chairman Martin Gruenberg at the 2024 Just Economy Conference

Online Event Archive Recorded April 4, 2024

Chairman of the Board of the Federal Deposit Insurance Corporation (FDIC) Martin Gruenberg provided remarks and answered questions from the National Community Reinvestment Coalition’s (NCRC) President and CEO Jesse Van Tol at the 2024 Just Economy Conference.



Bethany Sanchez, Senior Administrator Fair Lending, Metropolitan Milwaukee Fair Housing Council
Martin Gruenberg, Chairman, FDIC
Jesse Van Tol, President and CEO, NCRC


NCRC video transcripts are produced by a third-party transcription service and may contain errors. They are lightly edited for style and clarity.

Sanchez 00:10

Please join me in welcoming to the stage, FDIC Chairman Martin Gruenberg.

Gruenberg 00:31

Morning, everybody. And thank you, Bethany, for that very kind introduction. It’s great to be here. Thank you all for getting up early to participate in this session. And let me begin by thanking the National Community Reinvestment Coalition. And you’re very outstanding President, Jesse Van Tol for inviting me to take part in your Just Economy Conference.

Let me say, for over 30 years, as you well know, the National Community Reinvestment Coalition, has been a tireless advocate for economic opportunity in America. For a range of community development activities at the local, state, regional, and national level, your 700 member organizations have made an enormous impact in improving the quality of life for millions of people in our country. And let me begin by saying a word of thanks to all of you for what you do.

In particular, you have been perhaps the leading voice in our country, for the Community Reinvestment Act, which since its enactment in 1977, has been the foundation for access to credit investment, and basic banking services on a responsible basis for low- and moderate-income communities and communities of color in the United States. Let me be clear, that the purpose of the new CRA rule issued by the federal banking agencies is to adapt CRA to the changing nature of the banking business, and to strengthen its provisions to carry out its critically important public purpose. And we are firmly committed to the support of the rule and believe it is entirely consistent with the statute.

I would like to take the opportunity this morning to talk about a subject that is a core objective of NCRC, of CRA, and of the FDIC. And that subject is economic inclusion and access to the banking system of the United States for everyone lwho ives in this country. The FDIC is releasing today, its new economic inclusion strategic plan to guide our efforts to expand access to the banking system to all.

The occasion of your Just Economy Conference seemed like an opportune moment to discuss to discuss this topic, which is so central to our common goals. So let me begin. Federally insured bank accounts are fundamental to the ability of individuals and families to participate in and fully benefit from the opportunities created by our economy. Having a banking relationship provides households with the ability to securely and conveniently receive and hold funds, including through direct deposit. It enables consumers to pay bills and make purchases with confidence, while benefiting from protections that guard against risks, such as those arising from unauthorized transactions.

These and other protections including, of course, FDIC insurance, are available to consumers automatically when they open a deposit account by operation of law. They can’t be waived or eliminated in pursuit of other objectives. They are part and parcel of what it means to have a bank account. Unbanked consumers, unbanked consumers, that is those without an insured account, are not always assured of such protections. When they turn outside of the banking system, they may incur costly fees associated with nonbank services such as check cashing, and bill payments. They may have difficulty accessing credit, or find it only available on unfavorable terms. Finally, those without bank accounts that hold cash at home. They expose themselves and their families to risks, risks of theft, of accidental loss, or other misfortunes.

And unbanked consumers also miss out on important opportunities enjoyed by those in the banking system. A banking relationship allows customers to gain access to savings accounts, to establish credit, and to borrow to facilitate month-to-month needs, to acquire key assets like a car and make longer-term investments, such as in home ownership or entrepreneurial pursuits. For many, for many, a banking relationship is an important step toward achieving financial stability and securing a future for themselves and their families. Let me make this point: More than 99% of households with a home loan, have a bank account – more than 99%. And that’s not a coincidence.

Despite the advantages of banking relationships, not all members of the public have shared in these benefits. As a result, back in 2006, Congress tasked the FDIC with responsibility for conducting relevant research on questions such as the size of the unbanked market, and strategies for promoting economic inclusion. In doing so, the sponsor of that legislation offered a vision of a market in which and I quote, ‘All major depository institutions will look at unbanked minority families as a business opportunity and aggressively attempt to include them in the conventional finance system.’ To address this research mandate from Congress, the FDIC established its National Survey of Unbanked and Underbanked Households conducted every two years beginning in 2009 in partnership with the Census Bureau. This survey has been foundational to our understanding of this issue. It measures household participation in the banking system and identifies opportunities to expand economic inclusion. It provides data not only at the national level but for all 50 states and dozens of larger metropolitan areas. Critically, and I really underscore this point, its large sample size allows us to analyze how experiences vary across the  population and to break down banking access demographically, which is a critical line of sight to understanding this issue.

The initial surveys identified important challenges and provided an authoritative set of data to guide economic inclusion efforts. We found for example, that in 2011 8.2% of US households were unbanked, lacking a checking or savings account at a federally insured institution. We also found that over 20% of households were underbanked, meaning they had an account but also used nonbank products and services to meet basic financial needs. This ladder measure helped demonstrate that banks had additional opportunities to meet the needs of established customers to deepen their connection to the banking system. With 28% of households in 2011 being unbanked or underbanked, the results revealed that many Americans were not being well served by the US banking system. Adding to that concern, the survey revealed that when broken down, demographically, unbanked rates in the United States were much higher for some. 21.3% of Black households, 20.4% of Hispanic households, 22.7% for American Indian or Alaska Native households, and 19.4% of households earning less than $30,000 a year, were unbanked compared to 8.2% of the general population. We did not know this with certainty until this initial survey was done. In addition, 18.9% of working-age households with a disability were determined to be unbanked, as were 25.5% of single-parent households.

And the survey also provides a line of sight into the reasons households give for not holding a bank account. Common reasons have included simply not having enough money to meet minimum balance requirements, concerns about high and unpredictable fees and a lack of trust in banks. So, to address these challenges and to guide its work, the FDIC established its First Economic Inclusion Strategic Plan in 2010. Among other initiatives, the plan specifically called for the development of a prototype of safe, transactional accounts. It emphasized the importance of affordable, easy-to-understand products that were not subjected to unfair or unforeseen fees, which were an obstacle to many households entering the banking system. In April of 2012, the FDIC published a report on its model SAFE accounts pilot, detailing the positive experiences of financial institutions and consumers in a trial with products patterned on the FDIC model safe account template. These accounts were electronic, debit based, debit card based accounts, with low or no minimum balance requirements, low or no monthly fees, and were structured to eliminate the risk that households would incur overdraft or insufficient fund fees. No overdraft fees. While very few institutions offered such accounts at that time, today, today, they are widely available.

According to FDIC analysts, at least 340 banks are offering such accounts. These banks hold about two-thirds of all domestic deposits in the United States. Data contributed by 35 of the banks offering these accounts was collected and analyzed by the Federal Reserve Bank of St Louis. Analysts reported that more than 17 million of these accounts have been opened across 87% of US zip codes, and more than $120 billion deposited into these accounts in 2022 alone. They also reported that 85% of accounts opened at large banks were for customers that were new to the institution.

So a combination of four factors has been critical to the success of these accounts. First, they’re simple to understand. They’re simple to use, and they remove key risks of fees that many consumers had previously cited as barriers. Second, what’s good for the customer has actually proven to be good business for the bank. As multiple banks explain to the FDIC Advisory Committee on Economic Inclusion, improved customer experiences lowered the cost of servicing the accounts and improved customer relationships. Third, customers have become less reliant on checks over time, and more easily perceive significant value in these accounts. And forth, particularly with regard to unbanked populations, local networks, local networks of nonprofit organizations, financial institutions, and public agencies across the country, commonly referred to as bank-on-coalitions, have worked diligently to certify that accounts, meet national bank on standards and to connect consumers with them. And those standards, by the way, were modeled on and remain consistent with the core principles of the FDIC’s safe account template. The FDIC For its part, has helped interested banks learn more about how these kinds of accounts might benefit their communities, and to consider how they might go about offering such a product. It’s also sought to make Americans aware of the opportunity to open these accounts.

Now during the COVID-19 pandemic. The FDIC partnered with the IRS to help consumers without bank accounts, identify and open accounts designed to meet their needs. Many were especially motivated to open an account to be able to receive the public support payments that were made available during the pandemic in a secure and timely manner. In fact, our 2021 household survey revealed that 1/3 of all US households that had recently become banked, reported doing so in connection with an economic impact or similar statement. This finding has helped to highlight the potential advantages of prompting consumers to consider opening an account when they’re anticipating a payment or other income, such as from a new job. And we’ve come to think of such opportunities as what we call bankable moments, when a consumer is really receptive and sees an immediate need to open an account. And this is a lesson we have tried to learn from and to take to heart.

Last year, the FDIC worked with the Treasury Department to mail colorful inserts detailing the benefits of opening a bank account, along with 6.2 million federal checks already being sent to households. This partnership is continuing this year, and we believe the message is getting through because we’ve experienced significant contemporaneous increases and visits to FDIC webpages containing information on how to open an account.

So let me fast forward to today. Taking stock of where we are now. I can report that over the decade, ending in 2021, the unbanked rate has fallen in the United States by nearly half from 8.2% to 4.5%. The decrease among populations that have historically had higher unbanked rates was also pronounced and let me share those with you. The Black household unbanked rate declined from 21.3 to 11.3% during this period. The Hispanic rate declined from 20.4 to 9.3%. For those earning less than $30,000 per year, the rate went form 19.4 to 13.5. And for working-age households with a disability, the unbanked rate dropped from 18.9 to 14.8%. For single-parent households, the unbanked rate fell from 25.5 to 14.9. And for American Indian and Alaska Native households, the results also were encouraging, but given the relatively small survey sample for this group, we’re going to need to continue to monitor those results. In addition to these notable improvements in the unbanked rate, and I think this is interesting, we’ve also seen substantial decreases, decreases in the use of nonbank transaction and credit products that drive the surveys underbanked rates, and as you know, those nonbank transaction and credit products are often higher cost than consumers received from banks.

Many factors are no doubt influencing these trends. Certainly the aggregate efforts of local coalitions working with consumers finance and as well as financial institutions offering responsive products, and the efforts of the FDIC and many aligned organizations have been important and had value. I should also acknowledge that other developments, including historically low unemployment rates, and increased availability and use of mobile devices that can make banking more accessible and convenient, have also helped drive the unbanked rate down. As encouraging as these results have been, we are mindful that they are not assured going forward. While the design of these accounts should make them easier for households to sustain, any increase in unemployment from current historic lows will likely put upward pressure on the unbanked rate. In addition, consumers face an increasingly complex set of choices in the marketplace, as you all well know. These include some options from non-depository firms that on the surface may resemble banks, even if they lack certain protections, and may not offer all of the benefits of a banking relationship. Finally, while banks themselves have benefited from offering accounts that have proven popular with consumers, the continued support of the leaders of these institutions will likely be important to ensure those accounts continue to be readily available.

So as I mentioned, today, the FDIC is releasing a new economic inclusion strategic plan to guide our efforts to expand and support consumers’ participation in the banking system. The plan seeks to help households use a banking relationship to achieve financial stability and a more secure financial future. It also expands on previous plans by specifically addressing the opportunity for the banking system to do more to contribute to the development of strong communities. We continue to believe that ensuring all consumers have access to products and services from banks that are responsive to their needs is integral to the achievement of these objectives. The opening of an insured account helps households establish an on-ramp to the financial system and sets the stage for future financial success, including by establishing a positive credit history and making use of consumer credit from banks on a responsible basis. One promising development along these lines can be seen in small-dollar loan programs being developed by some institutions. These programs typically provide established account holders, with the opportunity to borrow small amounts of money at affordable rates and to repay them over a reasonable timeframe. It makes some sense the banks would find it easiest to extend credit to account holders since they have the benefit of being able to observe their income and financial management practices in account data.

While credit is important, so too is savings. And this is an important point to understand, if I may say, in response to a 2022 survey from the Federal Reserve, only 63% of adults said they would cover a hypothetical $400 emergency expense exclusively using cash or its equivalent. And for 18%, the largest expense they could cover with savings was $100, which tells you how close to the margin millions of families in this country are living. To address these concerns, the FDIC’s new plan seeks to help households achieve financial stability through the establishment of positive credit histories, and the use of consumer credit from banks, along with insured savings accounts. And to help households achieve longer-term security, the plan identifies mortgages and small business lending from banks as important opportunities to build household wealth. And perhaps the biggest change, the new plan specifically calls for the FDIC to take steps to encourage bank lending investments and services that support strong and healthy communities, including low and moderateincomes and other low- and moderate-income neighborhoods in other underserved communities. This would include, of course, community development, lending and related investments, with a broad range of objectives, including affordable housing, improved employment opportunities, and enhancing the resilience of communities to growing risks from climate change. While the FDIC has long sought to support banks community development efforts, the explicit connection to its economic inclusion work is new and entirely appropriate. Stated plainly, the plan recognizes that banks are unlikely to succeed in their efforts to build trusted relationships with households if they are otherwise neglecting to make investments that strengthen the communities in which those households live and work.

The FDIC uses a variety of strategies to pursue these objectives. We conduct research to provide a common fact-based understanding of the challenges. Through our nationwide community affairs program staff, we perform outreach to bankers to provide resources and support so they consider how their institution can expand participation in the banking system and serve their communities. We produce financial education resources and communicate the benefits of having an insured account to consumers. And finally, we work with community-based organizations that share our vision of a banking system that is responsive to the needs of families and communities.

Before I conclude, I specifically want to observe some of the ways in which the newly adopted Community Reinvestment Act rule would provide banks with the opportunity to receive credit for their efforts to expand economic inclusion. The rule was specifically recognized that consumers should have access to products and services that are affordable and responsive to their needs. The rule would help to clarify and expand recognition of a variety of community development activities. Among these are activities with and in support of community development financial institutions, minority deposit institutions, and women’s depository institutions. These institutions have a particular role in expanding access to the banking system for underserved communities. A banking system that is responsive to the needs of consumers and communities in these ways is an inclusive system and a system that merits the public’s confidence and support and lays the groundwork for its future success.

So in conclusion, the FDIC’s new economic inclusion strategic plan seeks to help consumers use banking relationships as a vehicle to establish financial stability, build wealth and secure a financial future for themselves in their families. It commits the FDIC to supporting bank efforts to strengthen communities through a range of community development activities. And let me be clear, the FDIC recognizes it will not succeed with a go-it-alone approach. The support of other federal, state and local agencies, of community-based organizations, local leaders, bankers, educators, and others is critical. So if I may, let me make a pitch to you all. If the outcomes we are seeking here are aligned with your objectives, I sincerely invite you to contact the FDIC, to contact one of our regional managers in our nationwide community affairs program to explore and talk about how we might be able to work together. If you are developing or revisiting your own strategies, and want to learn more about our work and approach to economic inclusion, please consider visiting our website where you can read our new strategic plan, and engage with our research and data.

And finally, if I may, let me once again thank the National Community Reinvestment Coalition and all of you who are here today, for what you do. I want you to know how much we appreciate your efforts, how important they are. And from my standpoint, what a privilege it is for me to have the opportunity to speak to your annual conference today and to be inspired by your leadership. Thank you all very much.

Van Tol 32:01

Well, thank you, Marty. And I just have to say, I want our people that understand that the really critical leadership role that you played as chairman of the FDIC and CRA reform. Without you, I think, well, we certainly wouldn’t have gotten done on this timeline. Just appreciate your efforts, your leadership there. So let me start there, I know you’ve spoken in public about the new rule a number of occasions, but maybe with specific regards to the issues in your speech, the unbanked, inclusive banking, your hopes and dreams and expectations for how the new rule is going to move us forward on those issues?

Grunberg 32:47

Well, listen. CRA at its base is about economic inclusion. I mean, it’s about encouraging banks to serve all the communities in which they do business, including low- and moderate-income communities. That’s what the statute is all about. That’s what made CRA a unique law from its inception. Most federal statutes, frankly, in the consumer area, try to prevent banks from doing bad things. CRA is about encouraging banks to do good things, to do business and serve all the communities in which they are engaged. And I think this new rule, as I indicated in my speech is fundamentally, fundamentally about adapting CRA to the rapidly changing nature of the banking business. It was essential in order to make CRA relevant for the next generation to do this rule, and at the same time, to strengthen the provisions of CRA to make it even more impactful and expanding access to credit, to investment and to basic banking services to every community in the United States, including low- and moderate-income communities and communities of color, which has historically, as you all well know, have lacked access to the banking system. So we view this rule as I indicated as as critically important, and we are very committed to it.

Van Tol 34:36

Thank you. Marty, you’ve also proposed new bank merger guidelines and, you know, we don’t really in this country, reexamine the banking charter every so often, though, I’ve personally proposed that we do so. So charters is really something that, of course you have to comply, with the laws – there are ways in which a bank can lose the charter – but the merger process is really a time when the question of how well a bank is serving the community comes up. And you’ve recently issued strong guidance that gets set, really demonstrating how the public will benefit, and also demonstrating in a much more affirmative way through the application, the adverse effects of a merger branch closures, job loss. Can you talk a little bit about your thinking about those changes?

Gruenberg 35:33

No, thank you for asking, asking about that. The FDIC has had a statement of policy on bank mergers, which lays out how we review bank mergers under the statutory factors we’re required to follow under the Bank Merger Act. But we had not updated that policy in over 20 years. And so the industry has changed dramatically in that time, so it was really necessary for us to take a look at how we review and consider bank merger applications under the act, and to provide more clarity and guidance as to how those reviews are done. And there are really four critical statutory factors that we look at. And we made some meaningful changes to those and I’ll just tic those off, because I think they’re relevant to the question that you raised. You know, one, we have to consider the impact of the merger on competition in the markets in which the two proposed merging banks do business. In the past, the key thing we looked at was a concentration of deposits and the control of deposits in local markets, but we have not in the past looked at concentration of assets, which is obviously also a critical factor in considering is there real competition in a local market. So one of the changes we make in our proposed statement of policy is to consider concentrations of bank assets, such as mortgages or small business loans in a local market, in addition to deposit concentrations. Second, second factor is what’s called managerial resources and future prospects, which is really short-term for safety and soundness. And, under the new policy, we want to see demonstrated that the merged institution from the standpoint of the banking system is not going to be weaker than the two institutions that are seeking the merger. We want to see a strengthening of the system, not a weakening of the system, as a result of the merger. And third, and directly responsive Jesse to the questions that you ask. We are required under the law to consider the impact of the merger on the convenience of the convenience and needs of the communities in which the two banks are doing business. And under our proposed statement policies, the merging banks would have to show how the merged institution would better, better serve the needs of the local communities not simply sustaining what’s been done in the past, but better serve the needs. It would include a consideration of their CRA performance, but other consumer compliance factors as well. And we think this is a critical component of the policy. And then finally, and I think this goes to some additional concerns you have, there’s a financial stability factor, which is relatively new that was added in the Dodd Frank Act in 2010. That requires us to look at the impact on financial stability of the proposed merger and listen it in light of the experiences of last year with three failures of large regional banks, under our proposed policy, any merger that results in a bank with assets over $100 billion would risk would receive increased scrutiny. And in addition, and I know this is a point of particular concern, any bank merger that would result in assets over $50 billion, or would be the subject of multiple CRA challenges would be required to have a public hearing held by the FDIC to ensure public accountability and transparency for the proposed merger. Taken together, we believe these are a thoughtful and reasonable set of proposed adjustments that will strengthen our review of proposed mergers and provide greater clarity and guidance both to the industry and to the interested public. And by the way, the comment period is now open and we certainly would hope to hear from you, as well as all other interested parties to inform us as we deliberate on the finalization of the policies.

Van Tol 41:02

Thankyou. That’s our time another warm NCRC round of applause for Chairman Gruenberg.

Gruenberg 41:14

Thank you.

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