This Fully Banked Essay example is published for educational and informational purposes only. If you need a custom essay or research paper on this topic, please use our writing services. EssayEmpire.com offers reliable custom essay writing services that can help you to receive high grades and impress your professors with the quality of each essay or research paper you hand in.
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.
- Adler, Joe. “Nation’s Unbanked Continue to Grow, FDIC Says.” American Banker, 177/142 (2012).
- Beck, Thorsten and Asli Demirgüç-Kunt. “Access to Finance: An Unfinished Agenda.” World Bank Economic Review, 22/3 (2008).
- European Central Monthly Bulletin. Frankfurt, Germany: The Bank, 1999.
- Federal Deposit Insurance “2013 FDIC National Survey of Unbanked and Underbanked Households.” https://www.fdic.gov/householdsurvey (Accessed December 2014).
- Federal Reserve Bank of New York. Annual New York: Federal Reserve Bank of New York, 1915.
- Klawitter, Marieka and Diana “Who Is Banked in Low Income Families? The Effects of Gender and Bargaining Power.” Social Science Research, v.40 (2011).
- 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).
- Stix, Helmut. “Why Do People Save in Cash? Distrust, Memories of Banking Crises, Weak Institutions and Dollarization.” Working Paper 178, Oesterreichische Nationalbank, Vienna, 2012.