Remarks by
John D. Hawke, Jr.
Comptroller of the Currency
Before the
National Community Reinvestment Coalition
Washington, D.C.
March 6, 2001

Winston Churchill used to say of democracy that it was the worst form 
of government ever devised -- except for all the others.  Churchills 
comment can also be applied to banking.  Although little loved, banks 
are nonetheless the best instruments yet invented for the promotion 
of thrift, wealth, and general prosperity.  Thats why we focus so 
much on what banks can do to help improve the lot of Americans who 
remain outside the financial mainstream.  And thats what I want 
to focus on this afternoon.

Bankers have never had a monopoly on the provision of financial 
services in this country.  They have always shared that market 
with a host of other providers -- many of them unregulated 
-- and thats never been truer than it is today.  A walk 
through virtually any town or city in America gives a sense of 
how diverse the financial marketplace is, and how many different 
kinds of financial providers operate and compete in our communities.  
All of them have a role to play in meeting a wide variety of 
financial needs.  Choice, after all, is an essential element of 
our economy, and to suggest that banks can be, or should try to 
be, all things to all people would be unrealistic.  

Yet not all financial providers are created equal.  As the risk 
of sounding parochial, let me suggest that banks add unique value 
to the services they deliver.  Though there may be no end of places 
to cash a check, get a loan, or pay a bill, the millions of Americans 
who -- for whatever reason -- dont obtain those services through a 
bank lose something important in the process. 

What they lose are the tangible and intangible benefits that a 
relationship with a mainstream financial institution can provide.  
That may include the incentives and institutional support necessary 
for individuals to build assets, transaction services at prices 
below those of unregulated fringe providers, and financial services 
that fringe providers cant offer at all, such as safe repositories 
for funds, and cheap and efficient payment services.  For a small 
business loan, a loan for education or job training, or an affordable 
mortgage, only a bank or other mainstream institution will usually do.

There are also the benefits of building a formal credit history and 
a long-term financial relationship with a bank.  The importance of 
those intangible benefits cannot be exaggerated for anyone who wants 
to climb the ladder of success in this country today. 

If all this is so, why then do some 10 million American families 
still not have an account with an insured depository institution?  
Its possible, of course, that the benefits Ive just described are 
not well understood by those who dont presently enjoy them.  Thus, 
the work that you, and a host of government, community, and consumer 
organizations around the country do to enhance basic understanding of 
financial issues is a crucial aspect of tackling this problem. Educating 
people about making wise choices and avoiding the pitfalls that dot the 
road to financial security will always be an important facet of any 
strategy to address the problem of the unbanked. 

Another explanation is the physical shortage of banking outlets in 
communities that are home to the unbanked -- a situation that could be 
related to the consolidation that has taken place in the banking industry.  
A recent government study found, not surprisingly, that low-income central 
city neighborhoods have fewer bank offices than higher-income neighborhoods 
and those outside the central city.  Affluent neighborhoods, where the median 
income was 120 percent or greater than the area median income, had three times 
as bank offices per 10,000 residents as neighborhoods where the median income 
was 50 percent of area median income.  In New York City, at last count, only 
2.5 percent of all bank branches were located in low-income areas that 
housed more than six percent of the citys total households.  In those areas, 
unregulated check-cashing establishments outnumbered bank branches by as much 
as two to one. 

When we look for explanations from banks that have a low profile in low- 
and moderate-income neighborhoods, what they tell us is usually valid -- but 
not necessarily sufficient.  Some have tried to make a go of it, only to find 
that they were unable to make a profit.  Some have pulled out of certain 
communities -- or chosen not to enter them in the first place -- due to 
security concerns.  And others have decided that service to the unbanked 
was inconsistent with the upscale image they were seeking to cultivate. 

Its obvious, I think, that in order to serve the community effectively, 
an institution should have a physical presence there. But the lack of physical 
access to banks cannot be the entire answer to the problem of the unbanked.  
Many of those who remain outside the banking system are there by choice.  
Neighborhood residents will walk right past the local bank branch -- 
which is usually pretty hard to miss -- to get to the check-cashing outlet 
next door.  Obviously, even where banks do operate, theyre not always 
meeting the needs of the local community. 

The best way to find out what those needs are is to ask, and when we do, we 
usually hear the same thing.  People who lack banking relationships tell us 
that they are uncomfortable in banks and, especially in communities in which 
English is not the dominant language, that its sometimes difficult to 
communicate with bank personnel.  Some express concerns about confidentiality.  
But more than anything else, they tell us that conventional banking services 
simply cost too much for small customers.  And the evidence suggests theyre right.

According to a 1999 study by the U.S. Public Interest Research Group, the average 
minimum balance required to avoid fees for checking accounts at large banks was 
$616.  Consumers who were unable to meet that minimum balance requirement paid an 
average of $217 a year, or $18 a month, to maintain a checking account.  Thats 
about the same price that a full-time worker earning the federal minimum wage would 
pay to cash his or her paychecks at a typical check-cashing outlet.  Even for "no 
frills" accounts, which provide limited check-writing with no minimum balance, 
consumers paid an average of $148 a year.  Most banks also levy high charges for 
bounced checks -- as much as $20 to $25 each.  Indeed, I once heard a 
representative of one of our major money center banks boast about how 
bounced check fees were an important profit center for his institution -- 
which, if true, is shocking and, in any event, not a very smart thing to 
say publicly.  Households with low incomes may be at greater risk of paying 
these fees, both because they maintain low balances and because they may have 
less experience in managing household finance.

Given these realities, its no wonder that so many low- and moderate-income 
Americans choose not to conduct financial transactions at a bank.  But its a 
decision that carries serious long-term consequences -- for the unbanked, for 
the economy, and for banks themselves, which lose customers whose business 
could well be profitable over time.  The challenge, then, is to find 
a way to build relationships between the unbanked and the mainstream financial 
institutions that make economic sense for both, over the short- and long-terms. 

We have a prototype for such a relationship in the Electronic Transfer Account, 
or ETA, which was developed under my direction when I served as Under Secretary 
of the Treasury for Domestic Finance.  It would be superfluous for me to describe 
in detail the features of the ETA to an organization that has been as intimately 
involved as NCRC has been in its development and promotion.  The opportunity should 
not pass to congratulate you on the important role NCRC continues to play in this 
effort.  

But in the context of our discussion today, its important not to forget that 
that ETA concept evolved from a business decision by Congress, embodied in the 
Debt Collection Improvement Act of 1996, to reduce the cost of delivering 
Federal payments by requiring that they be delivered electronically.  
Projections were that, when fully implemented, the conversion from paper to 
electronic funds transfer would save the government upwards of $100 million per 
year -- 28 cents for every paper check that would no longer have to be printed, 
issued, and mailed -- and replaced when the first one went astray. 

Of course, it was widely understood that these savings were not going to 
materialize unless those required to receive payments electronically had 
the means to do so, and we estimated that nearly 20 percent of all Federal
benefits recipients did not have accounts at a financial institution.  The 
Debt Collection Improvement Act mandated that the Secretary of the Treasury 
assure that anyone required under the Act to receive a payment directly have 
access to an account at a bank for that purpose at a reasonable cost.  It was 
in response to this mandate that we developed the ETA -- a model for a 
utilitarian, all-electronic account, which, for a fee of no more than $3 a 
month, allows recipients of many kinds of Federal payments, including salaries 
and retirement benefits, to access their funds automatically through electronic 
funds transfer.  The ETA was purposely designed as a "bare bones" model, in 
order not to preempt the development of more elaborate accounts by banking 
institutions. 

With the help of NCRC and more than 1400 local community-based organizations, 
consumer groups, and faith-based groups who are participating in the nationwide 
ETA campaign, were making tremendous progress in getting the word out to 
potential account holders.  And financial institutions, which receive $12.60 
for every ETA they open, are rapidly signing up to offer it.  Right now the ETA 
is available at more than 600 financial institutions with thousands of 
branches nationwide.  

Whats particularly encouraging is that many of these institutions are 
aggressively marketing the ETA as part of their basic retail banking strategy.  
Some banks are waiving or reducing the monthly service charge, making low-cost 
money orders available as an additional benefit to account holders, and allowing 
ATM withdrawals in excess of the four they are required to allow under Treasury 
rules.  Some banks are offering cash bonuses to the account holder when the first 
government payment is received.  Some are holding promotional events with local 
government officials.  Others encourage tellers to talk about ETA with customers 
trying to cash a Federal check, and offer tellers a bonus for every ETA customer 
they sign up.
    
Any program so new is inevitably a work in progress, and we certainly have a long way 
to go before we can declare the program a success.  How shall we measure that success?  
Not so much, I believe, in the number of ETAs that are opened, though thats important.  
I think, rather, that the ETAs greatest value is as a stepping stone -- for customers 
who use them to get a foothold into the financial mainstream and for financial 
institutions who use the ETA as a model to bring the benefits of a banking 
relationship within reach of others.  I see the ETA as a prototype for a technology
-intensive, low cost account capable of generating profits -- or at least paying its 
own way -- for the banks that offer them and attracting millions of Americans who do 
not currently receive Federal payments into the banking system.  Thats what I meant 
by the importance of building relationships between the unbanked and mainstream financial 
institutions that make economic sense for both.

Technology, I believe, is crucial to the solution.  The savings generated by a shift 
from paper-based systems, like traditional checking accounts, to electronic delivery 
should make it possible for banks to offer low- and moderate-income customers basic 
banking services at prices both can afford.  That was the logic behind the ETA, but 
it doesnt require government involvement to make it work.  The importance of technology 
has significant implications for legislators and community groups that have typically 
focused on traditional paper-based delivery in promoting so-called "basic banking" 
legislation as a solution to the problem of the unbanked.
 
The ETA, and similar types of electronic accounts, also have important implications 
for the spread of unregulated fringe providers.  Check-cashers and payday lenders 
offering high-priced services flourish where there are no lower-cost alternatives.  
But with the cost savings possible through electronic delivery, surely banks could 
offer these services at lower prices. 

Indeed, we see more and more banks drawing inspiration from the ETA but going well 
beyond it, developing their own low-cost electronic accounts that link direct 
deposit of payroll with a menu of services that can be accessed through ATMs, debit 
cards, and even personal computers.  Banks are targeting local employers to publicize 
the advantages of direct deposit -- advantages that, according to one research study, 
can add up to more than $1.25 for each payroll check that doesnt have to be issued. 
Savings like that help explain why more than 50 percent of private sector employers 
participate in direct deposit today -- a fivefold increase in little more than ten 
years. Still, that takes us only half way to what our goal should be -- a goal that 
other countries with advanced economies are far closer to achieving.   

Expanding participation among employees, of course, is crucial, and banks are 
making significant headway in this area, too.  Bankers may visit work sites to 
distribute informational materials and answer questions about direct deposit and 
the accounts that are based on them.  Theyre structuring these accounts in ways
 that make them increasingly appealing.  In at least one case, employees receive 
a debit card that, in addition to its customary functions, can be used to transfer 
funds to individuals in other countries at lower cost than a traditional wire 
transfer.  Other types of accounts offer electronic payment features, enabling 
employees to pay recurring bills.  And I know of a bank that offers customers 
short-term loans of up to 50 percent of their regular incoming direct deposit 
directly from an ATM.  I can think of no better or more constructive response 
to the payday lenders and others like them who prey on our communities. 
Its one more way that mainstream financial institutions can help low- and 
moderate-income Americans get off the treadmill of debt and onto the road 
of greater financial security.

I believe that technology offers great potential for bringing the unbanked 
into the financial mainstream, with all of its benefits.  It also offers new 
possibilities for financial institutions to develop deeper and more profitable 
customer relationships.  In order for these possibilities to be achieved, banks, 
employers, and community organizations must work collaboratively and creatively
to understand the needs of the individuals they serve.  We in government have 
an important role to play as well, but its the work you do in our communities, 
day in and day, that will make the most enduring difference in the lives of our 
citizens.