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Remarks By
John Reich Vice Chairman
Federal Deposit Insurance Corporation
before the
National Community Investment Fund Annual
Development Banking Conference
Chicago, Illinois
June 16, 2005
Good afternoon. Thank you, Ellen, for that wonderful introduction. I'm delighted to be
here today. This is an important conference—important for communities across this
country and the banks that serve them.
Two years ago, at your annual meeting, Chairman Don Powell talked about the large
market of unbanked and underbanked consumers. He described the challenges faced
by banks in reaching these consumers. And he called for innovations within the financial
sector to identify the needs of these individuals and their families—and to find ways to
meet those needs.
Chairman Powell also invited the members of NCIF to work with the FDIC. As partners,
he urged that we bring together leading experts to identify delivery strategies and
products that would bring more consumers into the financial mainstream. Today's
segment on Workplace Based Financial Services is just one outcome of that
collaboration. I'll talk more about that in a moment.
First, however, I'd like to extend my thanks, on behalf of the FDIC and Chairman Powell,
to three outstanding NCIF leaders—Lisa [Richter], Ellen [Seidman] and Jennifer
[Tescher]—for the time and expertise you have given to our collaboration on workplace
financial services. We are truly grateful. This work is crucial to develop strategies that
will help meet the needs of unbanked consumers.
If the three of you would please step up to the podium, I would like to present you with
an expression of our recognition and appreciation.
Lisa Richter, thank you for taking the lead in this effort, organizing each NCIF/FDIC
event over the past two years, and bringing the brightest minds in the country together
to explore these issues.
You have done a sensational job in making all this happen. It was the pioneering work
of your Retail Financial Services Initiative at NCIF that inspired FDIC staff to promote
employer/bank partnerships.
We at the FDIC appreciate your tireless work to assist banks in serving these markets
that have traditionally been underserved. Please accept this token of our appreciation.

Jennifer Tescher, as Director of the Center for Financial Services Innovation, your
studies and articles on this subject have been of enormous help to our partnership
efforts. I want to extend my thanks to you and your staff—including Katy Jacob—for this
excellent work. Please accept our recognition and thanks.
Ellen, Seidman, as Managing Director of Shorebank Advisory Services, your active
participation in our partnership meetings during the past two years has helped ensure
that banks will benefit from more opportunities. Your guiding hand has been essential.
Please accept this expression of our gratitude.
Workplace Financial Services and the Underbanked
Now, let me return to our topic for the day—Workplace Financial Services and the
Each of you here today knows the numbers. According to recent estimates, as many as
22 million American households are unbanked. These people do not have accounts at
banks and other mainstream financial institutions. As a result, they often pay excessive
fees for basic financial services, are vulnerable to high-cost predatory lenders, have
difficulties buying a home or otherwise acquiring assets.
To increase awareness about this problem, to promote practical solutions, and to
explain the benefits of bringing unbanked individuals into mainstream financial services,
the FDIC hosted a symposium more than a year ago at the National Press Club in
Washington, D.C. The topic of the symposium was "Tapping the Unbanked Market:
Helping People Enter the Financial Mainstream." Ellen Seidman and Lisa Richter were
moderators and speakers, leading panel discussions—thanks to both of your for your
active participation at that meeting.
The symposium also featured a congressional panel with Congressmen Spencer
Bachus, Ruben Hinojosa, and David Scott. The luncheon speakers were Congressman
Michael Oxley, Chairman of the House Committee on Financial Services, and Kelvin
Boston, host of the PBS-TV show "Money Wise."
In his remarks that day, FDIC Chairman Don Powell recalled stopping in a small town in
rural Texas on one of his trips home. He noticed a number of people waiting in line at a
check-cashing facility. Casually dressed—in jeans and cowboy boots—it was Texas
after all—Don Powell chatted with people in line without identifying himself as a bank
"I pointed out there was a bank just down the street," Chairman Powell recalled, "but
they all had reasons for not wanting to go to that bank. Some didn't feel welcome. Some
wanted to remain anonymous. Some didn't fully understand what banks do. But a lot of
persons who are unbanked know more about banks than we think they do. Banks need
to do everything they can to meet these people on their own terms, answer their
questions, address their concerns—go to where people work, pay taxes, buy groceries,

and teach Sunday School—you have to go into their community to get to understand
what they need."
We learned many things at that symposium that reinforced our desire to encourage
employer-bank partnerships to provide financial services through the workplace.
We learned that the market potential for mainstream financial services firms to serve
unbanked and marginally banked consumers continues to grow. While the number of
unbanked consumers may vary depending on whose report you look at, the numbers
still tell a consistent story—a staggering number of people remain unbanked in this
Over the past couple of years, I think we have gained a better understanding of the
reasons why some consumers are outside of the financial mainstream.
Some previously had bank accounts but may have poor credit histories or previous
difficulties in managing an account—often due to a lack of financial knowledge or
Others have bank accounts, but still use nonbanks for some products and services.
Some prefer the convenience, hours, and locations of other financial outlets or fringe
providers such as check cashers and others.
Some do not use bank services because they live from paycheck to paycheck. Still
others face cultural and language barriers or lack the necessary identification to open
an account. Many are lower-income.
Despite this, we know that many lower-income families are savers, even without bank
accounts. Unfortunately, without a connection to a financial institution, they lack access
to a wide variety of high-quality, affordable banking products and services.
The late Chicago newspaper columnist Sydney Harris once wrote:
An idealist believes the short-run doesn't count. A cynic believes the long-run doesn't
matter. A realist believes that what's done in the short run - or left undone - determines
what happens in the long run.
This message definitely applies to all the policymakers, bankers and community leaders
who struggle with making our financial system more inclusive.
We cannot wait until a utopian banking marketplace emerges by itself—a marketplace
in which everyone can participate. We have to make short-term strides now to bring
about that long-term result.
This morning we have already heard from a number of experts about ways to leverage
the workplace to deliver financial services—and we will hear more this afternoon.

Applying a workplace strategy to welcome consumers to mainstream banking makes
sense. The workplace already has many automated financial platforms. Employers have
a stake in the financial well-being of their employees. And delivering financial services
and financial education to workers where they work makes sense. It is convenient and a
place where they spend much of their time.
According to one study, a financially-stressed employee can cost an employer as much
as $400 annually, primarily in time wasted and absenteeism. Other studies suggest that
20% to 30% of low-wage workers are under financial stress great enough to hurt their
Workplace financial services and education can help reduce absenteeism and stress
related to personal financial matters; increase employee use and satisfaction of
employer-provided fringe benefits; and reduce employee turnover.
We have heard stories from employers who are offering workplace services. At one of
our joint NCIF/FDIC roundtables last year, the owner of an electrical company in Florida
with 100 employees explained his program.
He spoke admiringly of his employees—their work ethic, pride in workmanship, and
dependability. Many are immigrants from Latin America. They are establishing homes
here for their families. Some have two or more jobs just so they can send money home
to help family members.
He knew they were going to check cashers to cash checks; payday lenders to get
emergency loans; and financial remittance services to send money home. He also knew
about the accumulating high costs for these services every pay period. So he decided to
pay the employees through bank checking accounts, so they could access more
affordable banking services. He quickly learned that some employees could not
establish a checking account, did not know how to manage one, or were uncomfortable
with the idea.
So he tried another approach. He paid them through a re-loadable payroll debit card
offered through a service and a bank. The employees now access their pay through
ATMs. They buy groceries and pay bills with their cards. Their employer hopes that
eventually they will be able to send a card to families in their home country for easier
and less expensive access to cash than through a foreign remittance.
This employer isn't stopping there. He plans to provide financial education to his
employees through the FDIC's Money Smart Program. And, he will work with his bank
to move employees from a payroll debit card to a savings account—to a checking
account—to a credit card—to a car loan and—some day—to a mortgage loan.
In other words, this employer took that first step—that first, short-term step with an eye
on the long-term. He knows that the first step could lead his employees to a better

future. The employees, if they choose, can begin to build financial assets. The employer
will retain employees and reduce payroll costs. The bank will retain a good commercial
customer and attract new retail customers. Everyone benefits.
The findings on these payroll and other stored-value cards are compelling. One study
cited by the Center for Financial Services Innovation (CFSI) notes that non-gift stored
value cards are expected to reach $107 billion in 2005, and estimates that 25 percent of
these - or approximately 8 million cards - would be payroll cards.
CFSI also notes that the underbanked represent a vast, untapped source of new
customers and revenues for banks. They may have a bank account, but they continue
to use alternative financial service providers, losing out on the opportunities of
mainstream financial services.
Banks have much to learn from these alternative financial services providers, who
promote reloadable stored-value cards—including re-loadable payroll cards—as the
"un-bank account." One study indicates that up to 10 percent of unbanked households
use payroll cards. As some banks focus on the potential value of underbanked
customers, they are finding that such cards can be a potent tool to begin new customer
relationships. Bank customers also benefit. Stored-value cards issued by banks are
more likely than other cards to have consumer protections, better pricing, and provide
the means to migrate to into other financial products and services.
FDIC/NPR on Insurance Coverage for Stored-Value and Payroll Cards
For these and other reasons, in April of last year, the FDIC sought public comment on a
proposed rule to determine when funds underlying stored-value cards qualify as
"deposits" for the purposes of deposit insurance.
Under the proposal, among other things, cards issued by an insured bank or thrift would
qualify for individual insurance if the bank or thrift maintains information on the individual
cardholders –something we think may be relatively easy to do with payroll cards, for
Many of you here today have submitted comments on this proposal. You are waiting to
hear the outcome.
I want you to know that we are aware of the evolving and increasing stored-value and
payroll card market. We recognize the importance of these cards to all consumers,
including the underbanked, and the opportunities the cards can provide to banks to
reach underserved markets.
We at the FDIC are taking the time needed to carefully consider your comments. This is
an important step in ultimately making the right decision about how these cards should
be treated. We hope to have a decision in the not-too-distant future.
Community Development, Minority and Non-Branch Banking

Another important part of this conference was a meeting of the FDIC's Community
Development, Minority, and Non branch Banking Task Force. Last Fall, at the FDIC in
Washington, we brought together the chief executives of such development banks and
nationwide non-branch banks. They discussed ways to increase partnerships—and the
flow of resources—between the nation's non-branch banks and community
development and minority banks.
Non branch banks include, among others: ILCs supervised by the FDIC, many of the
unitary thrifts supervised by the OTS, and internet and credit card banks supervised by
all the banking agencies.
We invite these banks to join this task force to find easier ways to invest, make
deposits, or provide services to community development and minority banks and credit
unions serving our low- and moderate-income communities. This is one way larger
banks can efficiently make sustainable investments in lower-income communities and
improve CRA performance. And, smaller community development and minority banks
and credit unions can leverage some of these investments in stock, trust-preferred
securities, and deposits into more loans and services in their communities.
Other FDIC Initiatives
I'd like to close by giving you an update on our other efforts to reach the unbanked. I am
proud to report that our Money Smart Program is growing by leaps and bounds. Since
2001, almost 40,000 Money Smart students have established new banking
Recently we launched a Hispanic Outreach Initiative on Financial Literacy targeted to
individuals who do not have bank accounts. This group provides another tremendous
business opportunity for banks.
Last week, we announced the start of a national media campaign to reach Hispanic
Americans nationwide. This campaign will use print and radio ads to promote financial
literacy and explain the benefits of the Money Smart Program.
Earlier this year, the FDIC was asked by President Bush to serve on a national publicprivate partnership with the goal of ensuring financial education is available on a
consistent and comprehensive basis in Hispanic communities.
We also recently expanded our New Alliance Task Force (NATF) program, which began
here in Chicago, to other FDIC regional offices. This program aims to heighten
awareness about remittance products, other financial services and financial education
for Mexican immigrants. To date, largely as a result of NATF efforts, Mexican
immigrants have opened more than 50,000 new bank accounts, with more $100 million
in deposits.
And finally, the FDIC is working with the Inter-American Development Bank to
encourage financial institutions to set up programs designed to lower the cost of

remittance transactions. Remittances are an extremely viable new market for banks that
will meet a burgeoning need among Hispanic consumers.
These are exciting times. I believe our work together and the work of others throughout
the industry will lead to a more inclusive financial system. There is a lot to be done. I'm
a realist. I recognize that to achieve the long-term goal of reducing the number of
unbanked consumers we must make concerted short-term efforts. Through those small,
pragmatic steps we will welcome more Americans into the world of mainstream banking.
Thank you.

Last Updated 6/16/2005