A public banking option as a mode of regulation for household financial services in the US

Abstract

The current financial system fails to adequately serve millions of consumers, resulting in widespread financial exclusion and consumer financial protections abuses. To address these problems, this paper proposes a public option in household financial services. A public option as a mode of regulation is defined as the government using the direct provision of services to households and intermediaries as a tool to regulate in the public interest. The public option explored would include two components. First, the federal government would create a public bank that directly provides households with basic transaction services and consumer credit. Second, the public bank would directly provide intermediaries with a service, through managing an online financial services marketplace where public products would compete alongside private products. A public option of this type would create the financial infrastructure required for universal service, as well as prevent consumer financial protection abuses through public-private competition.