Banking the Unbanked: The Policies That Get In the Way

Walter OlsonI ’ve written two previous posts summarizing observations of consumer finance blogger Patrick McKenzie on, respectively, why laws against lying to banksare drawn to serve the interests of prosecutors and why the culture of regulatory complianceis ingratiating in a literally cringey way. I ’ll finish the series with a few excerpts from his posts on a theme familiar to Cato readers: why the oft ‐​discussed predicament of the unbanked — persons, often living at social margins, who lack bank accounts — is to an important extent driven by government policies themselves.As one example among several, consider the filing of SARs (suspicious activity reports), in which a bank reports to a central law enforcement database a transaction that might or might not reflect financial irregularity. McKenzie ’sexample (from Japan, but it could have been from here) is that of an emigrant worker who wants to wire money back to the home continent for a cousin ’s tuition payment, but cannot document that reason to the bank’s satisfaction as know your customer policies require, and gets angry at bank staff on being turned down. The bank generates a SAR which, like the overwhelming majority of such, most likely is never read by any law enforcer and generates no legal consequence of any kind.However, SARs are relatively expensive for a bank to process. A client who produces an excessive number of them will be judged a...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs