| All the way back on March 27, President Trump signed the CARES Act into law, allowing for $1,200 "economic impact payments" (or stimulus checks) to be sent to all but the richest American adults. The checks went out relatively quickly, with most people who were eligible getting them on April 15 — though that was already a bit late if you're living paycheck to paycheck. But as of September 17, the IRS was reporting that nearly 9 million eligible Americans still hadn't claimed their checks. That necessitated a massive outreach campaign by the agency and by private groups to try to get people their money. Relying on checks and direct deposits to accounts already on file with the IRS didn't work for millions of people. This was a symptom of a broader problem. Millions of Americans are un- or underbanked, either due to choice or lack of access. Overdraft fees, "monthly maintenance fees," and other charges can make keeping even a basic checking account at a major bank a burden, especially since those fees are mostly paid by low-income people. It seems especially rough to ask stimulus recipients, who are benefiting from a government program, to rely either on fee-charging private banks or high-fee check-cashing services to access those benefits. If it's a public benefit, why should they need to pay a private company to get it? This is a big problem, since we'll likely have to resort to stimulus checks again in the future. Luckily, there's a pretty simple solution: letting every American who needs one get a simple, no-fee checking account at the Federal Reserve. Called "FedAccounts" and proposed by three financial regulation specialists — Vanderbilt's Morgan Ricks, Columbia's Lev Menand, and UC Hastings' John Crawford — this proposal would end the exclusive access to accounts at the Fed that major banks and other select institutions have enjoyed. Banks can (and sometimes are required to) keep money at the Fed, where it will earn interest. The interest rate is extremely low now (0.10 percent) but pre-recession it got as high as 2.4 percent in 2019, far above what a private citizen could've gotten from a typical checking or savings account. FedAccounts would be held by the Federal Reserve and would charge no fees of any kind. Individuals and businesses could open them. Overdrafts wouldn't be possible, but you could use a debit card or checks just like a normal checking account. While the Fed doesn't have much experience running retail services for consumers, it could partner with others that do, like private banks, credit unions, or (for all you postal banking fans) the post office. The partner would be like the "user interface" for FedAccounts, while the Fed runs the actual accounts behind the scenes. Banks, for instance, might want to run the FedAccounts interface as a way to build relationships with new potential customers. The first-order benefit of this proposal is obvious: Americans who don't use or don't want to use high-fee banks would have a banking option that's free and easy. Americans could also use Fed Accounts to access stimulus money provided by either Congress or the Federal Reserve (though the latter would require legislation beyond just FedAccounts). But Ricks explained to me that the benefits go far beyond that. FedAccounts would make monetary policy easier by letting the Fed set interest rates directly for accounts held by individuals and businesses. It would save retailers and consumers money by offering a zero-fee way to transfer money, putting pressure on debit card providers, wire transfer providers, and others to lower their own fees. It would be a real-time transfer system, finally providing Americans access to the many benefits of real-time payments, something that consumers and businesses in Japan got all the way back in 1973 when the nation's Zengin payments system was set up. Arguably most importantly, though, it might reduce the risk of financial crises. "Virtually every financial crisis in US history and world history has involved runs on money instruments or money substitutes," Ricks told me in an interview. "Runs on this stuff is the preeminent source of acute macroeconomic disasters." Instead of keeping money in a market subject to runs and panics, companies and individuals could keep huge sums of money at the Fed, which won't fail and which will make sure interest rates don't become excessively high. By reducing the importance of run-prone assets, they would reduce the risk of those assets sparking a broader panic. That's a pretty good case for any policy. But FedAccounts would also provide free banking to millions of people without banks, making it easier and simpler to do stimulus checks, and bring a myriad of improvements to the payments system. The proposal almost made it into the CARES Act in March, and the top Democrats on the House and Senate banking committees (Maxine Waters and Sherrod Brown) have both introduced legislation to enact it. It would be an absolute no-brainer to include in the next stimulus package, whether that's this fall or under a President Biden in January. —Dylan Matthews, @dylanmatt | 
No comments:
Post a Comment