More consumers exit banking system

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More people are managing to do without banks.

That's the conclusion of a recent study by the FDIC, which found that 821,000 households opted out of the banking system from 2009 to 2011, and that the ranks of the unbanked has soared. As of now, about 17 million adults do not have a checking or savings account. About 51 million adults have a bank account, but use pawnshops, payday lenders or "rent-to-own" services, the FDIC said. This group of underbanked people has grown to 20.1 percent of households from 18.2 percent.

Obviously, banks are revenue-challenged at the moment, and most have no choice but to scale back in a variety of areas. Small accounts are rarely profitable, especially when you cannot easily charge fees. So the growing ranks of the underbanked is in some ways a logical outcome of the current industry malaise. Banks can't afford to subsidize tiny accounts. They pretty much have to emphasize service in areas where there is money to be made.

It might be tempting to think that consumers are better off without banks, but that's a foolish conclusion. While banks have been pilloried for all manner of ethical lapses and hard-to-justify fees, the reality is that they tend to be infinitely preferable to some of the shady firms that people in lower-income areas often have to turn to financial services. Some charge exorbitant rates and the fees are even higher.

The only real answer is a return to prosperity -- to have the sort of economy that generates enough income and demand for services such that banks and others respond. That's not going to happen soon, so perhaps other non-profit institutions need to step in with innovative services. -Jim

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