Talk of inequality is everywhere these days — and financial services is no exception.
There’s a growing consensus that the yawning gap between the rich and the poor is destabilizing for economic growth as well as for the country’s politics.
Citigroup’s Michael Corbat wrote on Wednesday that income inequality is an issue that keeps him “up at night.” Similarly, Jamie Dimon of JPMorgan Chase noted earlier this month in his shareholder letter that the American Dream is “fraying for many” as “income inequality has gotten worse.”
Both CEOs — along with their fellow big-bank counterparts — were grilled at a recent hearing about their compensation packages and the vast disparity between their pay and that of their workers. Even Jerome Powell, chairman of the Federal Reserve, has repeatedly cited the country’s large wealth gap as a factor that’s slowing down the economy.
Still, there’s been considerably less talk, at least so far, about the role that the banking industry can — or should — play in combating this trend. But the industry won’t be able to remain on the sidelines for long.
Just as financial institutions have been pulled into debates over gun policy, climate change and other social issues, they may soon find themselves pressured into action to help address inequality. This could include piecemeal efforts, like those to hire people with minor criminal records, ensure the availability of real-time payments for workers living paycheck to paycheck or provide more liquidity for furloughed workers when the government shuts down. But should a Democratic contender like Elizabeth Warren or Bernie Sanders be elected president in 2020, the expectations are likely to be much grander.
The same goes for financial regulators.
Notably, Powell has said the issue is largely outside of the central bank’s purview. But there are already hints that this approach could be shifting at the financial agencies, even under Republican leadership.
Consumer Financial Protection Bureau Director Kathy Kraninger nodded to this tension in a speech last week, citing the oft-repeated statistic that a majority of Americans don’t have sufficient savings to cover a $400 emergency. The agency is planning to step up its financial education efforts to stress the importance of emergency savings.
“Let me be clear, however, the ultimate goal for the Bureau is not to produce booklets and great content on our website,” Kraninger said. “The goal is to move the needle on the number of Americans in this country who can cover a financial shock, like a $400 emergency.”
Of course, critics would likely note that financial education alone is often not enough to help people save more — that requires meaningfully higher wages. But there is a kernel of an idea embedded in the bureau’s initiative that could grow over time. Perhaps there is a responsibility for regulators not just to crack down on abusive or fraudulent or risky behavior, but to actually help lower-income people find financial well-being.
Expect these debates to continue. While the current administration is unlikely to empower regulators, such as the Financial Stability Oversight Council, to take on the issue of inequality, the seeds of such a change are being planted now, and could easily be picked up by a Democratic administration in the future.
Bankshot is American Banker’s column for real-time analysis of today's news.
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