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Remarks by
Chairman Donald E. Powell
Federal Deposit Insurance Corporation
"Depository Institutions in the Lead in Building Assets in Emerging Markets"
National Community Investment Fund Annual Network Conference
Washington, DC
March 26, 2003

Good morning. Thank you for inviting me to speak today.
I am here to talk about how all of us can do a better job of ensuring banks provide
access to capital for families who need it. Some banks are already doing this - and
doing it well. They are taking the lead in expanding their bank's presence, activities and
customer base in underserved emerging markets, and they are an inspiration to many
of us who believe deeply in achieving this important goal.
We have been busy for quite some time at the FDIC, and the financial industry as a
whole, grappling with the vexing question of how to better integrate many Americans
into the financial mainstream. I welcome the opportunity to discuss with you how the
financial industry is meeting that challenge and what still remains for us to do.
About seven years ago, Congress passed the Debt Collection Improvement Act. One of
the purposes of this legislation was to provide incentives for individuals to receive
federal payments electronically through direct deposits, and increase their access to
accounts at federally insured financial institutions. An unexpected outcome of this effort
was that it exposed the huge number of people without bank accounts - a number
estimated to exceed 10 million. Over 10 million unbanked people in America. It also
made clear the need for further dialogue among the bankers, policymakers, community
groups, people in academia and others about how to broaden access to the financial
infrastructure many of us take for granted.
Now that we understood the magnitude of the need, many questions followed: Who are
the unbanked? Why are they outside of the financial mainstream? Why does their
absence matter? What are the obstacles that impede their access to bank services?
What are the benefits of bringing them into mainstream banking services? And, what
strategies, products, policies and partnerships can be developed to facilitate a banking
Clearly, getting the answers required more research on the unbanked. It also called for
identifying new business opportunities, recognizing the need for creative marketing
efforts and developing innovative initiatives from bankers themselves.
So, seven years later, do we have answers? Some, perhaps, but certainly not all.

We now know, for example, that adults without transaction accounts - such as savings,
checking, mutual funds and money markets - are more likely to have low incomes, be
younger than 35, non-white or Hispanic and unemployed. We also know they do not
own their home, they have limited English speaking ability and they have low levels of
We know that many of these individuals live from paycheck to paycheck and remain
unbanked for reasons ranging from problem credit histories and debt burdens, to
distrust of financial institutions, to the lack of financial education.
We also know that these households, when cut off from mainstream credit, will try to
find it informally by turning to high-cost lenders such as pawnshops, car-title lenders,
payday lenders, check-cashiers and wire-transfer companies.
We also are aware that unbanked households represent a category of customers that
can be potentially profitable to depository institutions. According to the Financial
Services Centers of America, check cashiers process 180 million checks annually with a
face value of $55 billion. According to a recent article in the American Banker the wiretransfer market generated more than $122 billion in remittances. There is certainly a lot
of activity in this area, and this would support the premise that these might be profitable
bank customers.
Banks that reach out to establish relationships with consumers participating in fringe
financial services may be able to reap the rewards of cultivating new, full-service
customers; building relationships that will improve with their economic circumstances.
A lot of industry discussion and media attention has been generated recently regarding
the unbanked in general and the rapidly growing segments of ethnically diverse
consumers who are either unbanked or underbanked. These population groups include
immigrants, as well as African-Americans. They represent emerging markets for new
and expanded bank products and services.
Interest in multi-cultural markets has skyrocketed since the release of the 2000 census
demographics. The statistics that have stimulated such keen interest are well known.
Asians make up 4% of the U.S. population, and that percentage is expected to grow to
6.5% by 2025. The Hispanic population, currently around 13%, is expected to reach
18% in that same period.
According to estimates cited by the Research & Advisory Group, by 2007 we could see
spending on investment products by Asian-Americans climb 77% and spending by
Hispanics should surge by over 90%. In addition, the rise in homeownership among
African-Americans by 89% between 1993 and 2000, make them an attractive market
segment for bank products and services. The growing economic clout of these groups
represents new untapped markets. For banks that successfully reach them, these
groups represent a significant business opportunity.

The broader question now is whether the financial services industry - and their
regulators - can effectively encourage the type of products, services and outreach that
will motivate these customers to enter the mainstream market.
I believe we can, and in many instances we already are.
The FDIC, for its part, is committed to promoting this effort through our financial
education curriculum, Money Smart, which we developed to help build awareness
among the unbanked about the benefits of banking relationships. We are focused not
only on quantity, but quality. We are developing performance measures that will enable
us to determine the results of our efforts. Our goal is to make a difference in peoples'
But our educational efforts don't just stop there. We believe financial education is more
effective when offered in conjunction with other asset building strategies, such as
opening a new accounts, Individual Development Accounts (IDAs), free tax preparation
for Earned Income Tax Credit (EITC) refunds and job-training. FDIC has taken the lead
in establishing partnerships with community and banker coalitions to link EITC funds
with bank services, free tax preparation services and financial education. We support a
number of EITC programs located in the Midwest, including Chicago, Milwaukee,
Toledo, Louisville, and Rockford. During the 2002 tax season our work with the "Back of
the Yards" VITA site in Chicago helped over 600 families file tax returns and receive
$1.1 million in EITC refunds. As a result of linking these efforts with banks onsite we
were able to see many unbanked consumers establish new bank accounts.
In March 2002, President George Bush and Mexican President Vicente Fox launched
the U.S.-Mexico Partnership for Prosperity, as a way to address the growing problem of
the high costs associated with sending money from the U.S. to Mexico. One element of
the plan is to encourage more banks to open accounts with legal immigrants and offer
remittance features. It also mentions how financial education programs, such as the
FDIC's Money Smart and the U.S. Treasury's First Accounts program, can demonstrate
the benefits of using financial institutions as alternatives to high-cost wire transfer
Over the past year, the FDIC Chicago Community Affairs Program has been working
with a number of partners including the Mexican Consulate, IRS, and banks to address
the remittance issue. To date, 36 banks in Illinois and Wisconsin with more than 1,800
branches in the Midwest are opening new bank accounts for Mexican workers.
Mexicans working in the U.S. can deposit money into their accounts at a financial
institution in the U.S. and obtain two ATM cards, one for their use and one to send to a
family member in Mexico, thus avoiding costly fees charged by money transfer
companies. The Mexican Consulate in Chicago has taken the national lead on issuing
Matricula consular cards, and in a pilot program, modules of the FDIC's Money Smart
program were taught in Spanish to Mexican workers at a consulate site in Elgin, Illinois
while they waited to receive Matriculas.

Obviously, having people just go through a financial education program is not enough.
Many individuals who complete Money Smart classes will still not have access to
mainstream financial services. How can we best help them?
Fortunately, many banks understand that attempting to reach unbanked consumers
through nontraditional methods is good for their business. The growing success of
institutions reaching out to the unbanked indicates this segment of consumers can be
brought into financial institutions with the right product mix and marketing strategy.
One such example comes from a bank in the Midwest, which has taken a creative leap
by reaching out to one of the least banked groups in America: immigrant teenagers. For
the past three years, the bank has operated a full-service branch inside a high school,
located in a low-income district of largely Hispanic immigrants. The branch, which is run
by students who earn credit towards graduation requirements while working under adult
supervision, has been so successful that many of the students' parents now deposit
their paychecks there. At least 90% of these new customers have never had bank
Another example comes from a bank located on the West Coast, who recognized the
need to provide affordable banking services to the unbanked. The bank created a hybrid
check-cashing/banking initiative aimed at linking low- and moderate- individuals to
traditional banking services. A number of branches specifically designed to serve the
needs of households outside the financial mainstream were established. Another
component of the initiative is financial education seminars and workshops offered by the
bank through about 80 community-based organizations. Informal education is also
offered at the teller window. Tellers describe account options and encourage new
account holders to start a savings account. All materials are available in Spanish and its
bilingual staff is recruited from the community it serves. The bank also serves as a "onestop" financial institution for its customers. It offers variety remittance services for
account and non-account holders, as well as an array of financial services with low fees
to non-account holders, including check-cashing, money orders and bill payment
services. In addition, the bank also works with some employers to provide on-site
ATMs, check cashing and account opening services.
The private sector innovators are opening doors for the unbanked. To continue these
efforts we need to further explore the issues that inhibit the participation of unbanked
consumers in America's financial mainstream. We, at the FDIC, will contribute by
bringing good lenders, good products, good services and good information to the
unbanked and burgeoning multicultural markets.
I recently read with great interest NCIF's April 2002 report "Retail Financial Services
Initiative: A Report on Innovative Products and Services for Low Income and Unbanked
Customers." I am pleased we share an interest in identifying solutions to address both
the immediate and long-term needs of the unbanked. Addressing these needs is not as
simple as opening a bank branch in underserved neighborhoods. The report recognizes
and outlines a number of alternative delivery strategies and products for financial

services. The proposals merit more dialogue if we are to stimulate asset building habits
in a larger way, and penetrate new markets on a profitable scale.
I have provided you with several examples of what we are doing at the FDIC and a
couple of innovative approaches that are being implemented by banks to bring the
unbanked into the financial mainstream. Which brings me to a question under
consideration at the FDIC, "What next after Money Smart?"
I would like to announce today that our first step is to host a roundtable in Chicago, in
partnership with NCIF. We would like to bring together the right people, with a broad
spectrum of experience, who can help us explore creating a program --sponsored by
banks, major employers and other entities -- to provide services in low- and moderateincome communities. Our discussions will center around developing a Pilot Program to
help us implement this important goal.
I hope the proposed forum can provide us with the innovative solutions that are needed
for banks to better meet the needs of the unbanked and an opportunity to become more
progressive helping banks meet their community lending responsibilities.
We have a great banking system in this country. Everyone should have an opportunity
to participate in it. With your help on the proposed forum I think we will have the means
to offer better financial alternatives to the most needy in our society.
Thank you for inviting me to join you here today. I look forward to continued dialogue
with you.

Last Updated 03/26/2003