Fully Banked Essay

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The  term  fully  banked   is  used  to  describe  the extent  to  which  the  population of a country  has access  to   affordable  banking.   It  describes   the banking  status of a household for a specific demographic  group  or society and  indicates  the inclusiveness of the banking system. To assess the household banking  status,  various  categories  are used to distinguish  between  the patterns of using the banking  services provided  by insured  banks.

Generally,  to  bank  means  to  keep  money  or assets  in  a  particular bank  or  financial  account. The practice of banking  evolved with the commercialization  of merchandise and as the exchange  of natural products among  members  of a society expanded beyond local boundaries. Thereby, financial transactions grew more complex. The particular financial  instruments used to do “banking” are predominantly represented by the means  of accumulating, funding,  and  investing  such  deposited assets. Financial  instruments shape the nature  of a particular banking  system. Banking systems are adopted according  to  the  needs  of the  depositors and  the means  available  to the banking  establishment. Money and financial assets are therefore important mechanisms that influence the welfare of citizens and the processes of economic  expansions and state formation.

In general, “fully  banked” describes  the  exclusive use of safe and  insured  financial  services for private banking needs. The use of insured and chartered banks   is  encouraged  by  governments, and  banks  compete  increasingly  with  the services provided  by the so-called alternative financial services  (AFS). These  businesses   offer  AFS  and operate   outside  the  federally  insured  banks  and thrifts.   Such  AFS  provide   a   whole   range   of financial  services, such  as check-cashing  services, nonbank remittances, payday  loans,  financing  of rent-to-own agreements,   unrecorded credit  card/ debtor   services,  and   refund   anticipation  loans. Also,  the  use  of  pawn  shops  is considered  AFS, since  pawn  shops  offer  instant   cash  outside  the insured  banking  system. These  alternative service providers   often  charge  high  fees  for  the  convenience of instant  money, for the nonrequirement of opening  a permanent account, and, in some instances,  for  providing  anonymity. On  a  global scale, studies  reveal that,  both  poor  and  nonpoor people in developing countries face financial exclusion  and  high  barriers  in  access  to  finances  and insured  banking  services.

Household banking  status  categories  are “fully banked,” “unbanked,”  and  “underbanked.” The different  categories  are  based  on  the  assumption that  financial  services can be provided  by insured banking  institutions and AFS institutions.

A household that  includes  two  or more  people related  by birth,  marriage, or adoption and  residing together  is a family household. Members  of a family  household may  reside  with  any  unrelated people.

Fully banked  households do their daily transactions  and  payments   through  checking  accounts and   have   liquid   assets   to   maintain  a  savings account. The members of a fully banked household either have never used AFS or have not used these services  in  the  recent  past.  Fully  banked   households  rely  on  the  banking   services  provided   by insured   banks,   which   means   that   the   banking industry  must provide  affordable banking  services and access to personal  accounts  in order  to lower the  rate  by which  consumers  are  using AFS. The reality  in  the  modern   banking   world,   however, reflects the opposite trend. Banking services are becoming  less  affordable with  increasing  unemployment rates, increasing personal debt-income ratios, and an increasing number of online personal financial  transactions.

By comparison, the so-called  unbanked households do not use checking or savings accounts  but use exclusively the services of alternative banking institutions and  money  transaction providers   to manage  their finances and financial  transactions.

Members  of an underbanked household might have  a checking  or  savings account  but  may  seldom  use AFS, or  use  them  only  sporadically, so that they do not meet the definition of “unbanked.” Demographic characteristics are  still the  most important indicators of banking  behavior  and the degree of trust  in the banking  system. Household statistics  assume  that  all adults  residing  in a fully banked household are fully banked. Banking status reports   do   not   consider   that   unbanked  adults might  reside  in  a  fully  banked   household.  For example,  young  adults  still  residing  at  the  fully banked  parental home  might  indeed  not  be fully banked,  not having enough liquid money for holding a savings or checking account  and using more frequently  AFS for  transactions, which  they  self- manage  online.

There  are  various  reasons  why  people  are  not fully banked.  The main  reasons  are lack of financial  security  and  the  associated  lack  of liquidity, which leaves them without enough money for depositing   in  bank   accounts.   Earned   money   is spent on rent, food, and immediate needs or for the repayment of loans. Since not fully banked  households predominantly use alternative banking services,  outstanding loans  and  debts  with  such noninsured institutions perpetuate the spiral of not having  enough  money  for  personal  savings  and, thus,  not  having  the liquid  assets to become  fully banked  with traditional banking  accounts.

Other  reasons  for not  holding  sizable assets in bank  accounts   are  a  dwindling   lack  of  trust  in banks, the memories of and reoccurrence of financial  crises, the  liquidity  crisis among  banks,  and weak tax laws that  encourage  the holding  of cash at home rather  than a deposit in checking and savings accounts.

The degree to which potential customers  make use of nonalternative banking  services also correlates  to  barriers  to  banking  services, which  vary among banks and countries. Loan balances, high account  and service fees, the documentations required,  restrictions on bank  activities,  bank  disclosure practices, and poorly developed infrastructures are barriers  that  contribute to a lower public confidence  in the banking  system.

In the United States, the mandate of the Federal Deposit  Insurance  Corporation (FDIC) is to  provide  information on  banking   habits  in  order  to ensure   that   all  Americans   have  access  to  safe, insured, and affordable banking.  For this purpose, biennial  surveys are conducted on the activities of insured  depository institutions and  on  the  inclusiveness of the financial  services they provide. The FDIC’s Unbanked/Underbanked Survey Study Group summarizes the surveys and publishes a national survey report  on the status  of the household banking  status  annually.

To  identify  the  demographic characteristics of those  making  use of insured  banking  services, the FDIC uses household classifications  that were established  by the U.S. Census Bureau. Such demographic  characteristics of consumers  are race, age, education, and employment.

The least fully banked  households in the United States are found  among  non-Asian  minorities  and low-income  households, youth and younger households,  and  unemployed   households. This  means that  these groups  more frequently  use AFS than  do older adults, the employed, and high-income groups.


  1. Adler, Joe. “Nation’s Unbanked Continue to Grow, FDIC Says.” American Banker,  177/142 (2012).
  2. Beck, Thorsten and Asli Demirgüç-Kunt. “Access to Finance: An Unfinished Agenda.” World  Bank Economic Review,  22/3 (2008).
  3. European Central Monthly Bulletin.  Frankfurt, Germany:  The Bank, 1999.
  4. Federal Deposit Insurance  “2013 FDIC National Survey of Unbanked and Underbanked Households.” https://www.fdic.gov/householdsurvey (Accessed December  2014).
  5. Federal Reserve Bank of New York. Annual New York: Federal Reserve Bank of New York, 1915.
  6. Klawitter, Marieka and Diana  “Who  Is Banked in Low Income Families? The Effects of Gender  and Bargaining  Power.” Social Science Research, v.40 (2011).
  7. Scott, Kinnon and Robert  “Measuring Household Usage of Financial  Services: Does It Matter How  or Whom You Ask?” World  Bank  Economic Review, v.24/2 (2010).
  8. Stix, Helmut. “Why Do People Save in Cash? Distrust, Memories  of Banking Crises, Weak Institutions and Dollarization.” Working  Paper 178, Oesterreichische Nationalbank, Vienna, 2012.

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