Regulated Out Of Banks And Credit
Meredith Whitney writes in the WSJ that millions of Americans have lost access to credit and essential banking services due to regulatory "reforms." She writes that one in four Americans were "unbanked" in 2005, but that number will reach one in three in the near future:

Excluding millions of Americans from traditional banking services is not an efficient means of commerce and will result in long-term negative consequences for our economy. The negatives include higher transaction costs, lower household savings, and the concentration of credit in the hands of the few--conditions more commonly associated with Third World countries.

Banks are partly to blame for the post credit-crisis shrinkage in banking services. They have not figured out a way to reprice consumer loans effectively in a post-securitization world. For decades, banks could underprice consumer loans (mortgage, home-equity and other personal loans) because they were subsidized with the high fees from securitizations. That all ended with the collapse of the subprime mortgage market.

...But importantly, banks are not to blame for the unintended consequences of ill-planned and ill-timed regulatory reform. The Credit Card Accountability, Responsibility, and Disclosure Act (CARD) essentially restricted a bank's ability to quickly reprice credit-card interest rates. It was passed in 2009 after the peak of the credit crisis, with most of the provisions going into effect in February 2010.

Since mid-2008, over $1.6 trillion in credit lines have been expunged from the system. Under the new law, banks could no longer use other credit bureau information to reprice, as decisions had to be based upon the credit experience of the issuer alone. These restrictions made it far more difficult to effectively price for the evolving risk of a consumer.

Overdraft protection ("Reg E") reform has had a similar impact on retail bank customers. By limiting the fees banks can charge customers, regulators have in effect made the expense of servicing some customers greater than the revenue they generate. In many cases, regulations have made the overall economics of branch banking uneconomic. Consequently, many bank branches have shuttered, nearly 1,500 since 2009.

Pre-paid debit cards have grown exponentially over the past few years. (Pre-paid cards are vehicles that essentially allow a consumer to borrow from themselves.) Many of these come with high fees. They are not the solution, but merely the only viable option in the current regulatory environment. Will they be the next target for well-intentioned regulatory reform?