Author: Mehrsa Baradaran

The financial crisis of 2008 made clear to the public, in a way that had not been apparent for some time, that banks depend for their existence and operation on a structural framework created by the federal government. But policymakers as well as the public at large do not have a clear view of the reason why the federal government regulates the banking industry in the first place—namely, to serve the credit needs of the American public. The continuous, underspecified debate between more and less regulation of the banking sector overlooks one very grave problem: the financial services sector has elected to serve only the middle class and the wealthy, leaving the underbanked poor in the hands of predatory and payday lenders, check-cashing services, and other providers of typically usurious loans. Since the federal government cannot force banks to serve the public through low-cost credit and banking services, they have chosen not to.