Financial Regulators: Economic Inclusion and a Healthy Economy Go Together Like Peas and Carrots

Or, such is the distillation of the comments made yesterday at the event "Rebuilding the Road to Financial Stability" (co-sponsored by the Congressional Savings and Ownership Caucus and the Center for Financial Security at the University of Wisconsin-Madison) made by Federal Reserve Governor Sarah Bloom Raskin. She was joined in that sentiment today by Sheila Bair, Chair of the FDIC, at a hearing before the Senate Committee on Banking, Housing, and Urban Affairs. In particular Chirwoman Bair focused on the role of consumer protection in economic inclusion.

"It is important to recall that a fundamental cause of the financial crisis from which the country is still emerging was a failure of consumer protection in the mortgage market. While the FDIC was at the forefront of efforts before the crisis to identify and try to address the implications of both subprime and nontraditional mortgage lending, the regulatory guidance on these loan products – which only applied to insured banks – came too late to prevent mortgage lending weaknesses from undermining the foundations of our housing and financial systems...If the rules now in place had been in existence in 2004, the crisis would have been less severe, if not averted.”

Between Governer Raskin's assertion that "Broad financial inclusion is essential because it bolsters American consumption and savings, which drives macroeconomic growth. In order to promote efficient economic growth and stability, Americans must have safe and affordable access to the tools necessary to function in the modern economy...Affordable, transparently priced, and safe financial products and services promote positive outcomes for individual consumers, which in turn supports the growth and stability of the overall financial system." and Chairwoman Bair's that adequate consumer protection could have averted the worst economic downturn since the Great Depression, it could not be more clear, and more pragmatically argued, that products, services, and polices that include people on the financial margins serve the economy as a whole.

Of course, realizing the standard of inclusivity is easier said than done. On the financial services side, over 17 million Americans don't even have a bank account and on the policy side, the majority of the $519 billion in the federal budget for savings and asset-building go to higher income households.

The good news is that there are ways to compensate for those market and policy failures.

As Chairwoman Bair said, "Economic inclusion is about promoting widespread access to safe, secure, and affordable banking services so that everyone has the opportunity to save, build assets, and achieve financial security." Oh, and keeping the economy from going down the tubes.