Abstract
AbstractWe study access to banking and how it is related to banks’ rate of return on investments and the distribution of income. We develop our empirical framework through a theoretical supply-side model of bank deposit services with a consumer population heterogeneous in income. We use this model to show how decreases in the interest rate margin and higher income disparities lead to an increase in the proportion of unbanked. Using localized US household data from 2009, 2011, 2013 and 2015 we find strong empirical evidence for the predictions of the model. We then structurally estimate our model to estimate the value of having a checking account relative to alternative financial services and to quantify the effects of actual changes in the interest rate margin and the distribution of income that occurred in the aftermath of the 2008 financial crisis.
Highlights
This paper studies financial exclusion and its determinants by taking advantage of a new dataset focused on the unbanked and underbanked in the US (FDIC 2017).This work 1374 | M
We structurally estimate our model to estimate the value of having a checking account relative to alternative financial services and to quantify the effects of actual changes in the interest rate margin and the distribution of income that occurred in the aftermath of the 2008 financial crisis
The results from the reduced-form analysis show that decreases in the interest rate margin and increases in income disparities lead to increases in the proportion of unbanked and higher financial exclusion
Summary
This paper studies financial exclusion and its determinants by taking advantage of a new dataset focused on the unbanked and underbanked in the US (FDIC 2017). Banks are estimated to provide a small but significantly positive benefit to low-income account holders relative to the use of AFS (as well as relying purely on cash transactions). Other hand, Bord (2017) studies the impact of a related supply-side mechanism, i.e. consolidation and the emergence of large banks, irrespective of market concentration They show that consolidation, which partially resulted from the US deregulation laws, led to the predominance of large banks with higher fees and an increase in the unbanked households.
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