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Cost of Banking for LMI and Minority Communities

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Abstract

Bank accounts are critical for participation in the modern economy. However, these accounts frequently require maintenance fees and incur overdraft charges. We assess whether minimum account balances to avoid fees, account maintenance fee amounts, and non-sufficient funds charges are systematically different in LMI and majority-minority communities, and find that they are generally higher. For example, the minimum account balance to avoid fees in a non-interest checking account is about $50 higher in LMI Census tracts than in higher income tracts, and $75 higher in majority-minority tracts. Differences in bank fees between LMI, majority-minority, and other communities result from various factors, including bank lending income, bank operating costs, and bank size.

Suggested Citation

  • Marco Migueis & Michael Suher & Jessie Xu, 2022. "Cost of Banking for LMI and Minority Communities," Finance and Economics Discussion Series 2022-040, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2022-40
    DOI: 10.17016/FEDS.2022.040
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    References listed on IDEAS

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    More about this item

    Keywords

    Bank fees; Deposit accounts; LMI; Majority-minority;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G50 - Financial Economics - - Household Finance - - - General
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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