Sarah Bloom Raskin | NCRC 2013 Conference | 3.22.2013

Sarah bloom Raskin took office in two thousand ten on ten on the Federal Reserve Board of Governors and before that appointment though she served as the commission of regulation for the state of Maryland and we know a lot of our member Maryland members have always had a lot of good things to say about him Marilyn Marilyn and now she also and by the way was it was a key player in the effort to to minimize the and highlight what was what were the results of the financial crisis so she also served in the banking counsel for the US Senate Committee on Banking Housing and Urban Affairs when she proposed a negotiated financial legislation early in her career she worked with the federal reserve bank of new york in that and the Joint Economic Committee on Congress just last week governor Raskin rightly pointed out how damaging the housing crisis was to ella my neighborhoods by saying and I quote I don’t need to tell you how damaging the recession was too low and moderate income neighborhoods by the mid 2000s the impact of subprime mortgages particularly those targeted too low and Martin and minority neighborhoods will income in our neighborhoods was easy to see this is a speech he did a neighbor works in oppose iam she has sounded the alarm on the threat income inequality has on economic growth she did that at the new American Foundation forum in 2011 she called on the mortgage companies and investors to do more to revive the housing market quote the government can only do so much in relevant private sector actors need to think beyond their bottom line and focus on how their firms actions are are not contributing to the economic recovery I agree she is exactly the kind of voice we need more of at the Federal Reserve and any other Prudential regulatory agencies and I think we’re seeing any other agencies as well new voices that are encouraging this whole notion of fairness leaving our equality please join me in welcoming governor Sarah bloom Raskin thank you John for that lovely introduction I have to say I am just delighted to be here this morning with you at the National Community Reinvestment coalition annual conference today and to really be gathered with so many people who have been working for decades to strengthen communities and the integrity of our nation’s economic institutions and financial practices those of you involved in community development and community reinvestment know all too well the trauma and hardship experienced by low-income communities over the last several years you know it in a way that’s lost on people whose communities have not been so badly battered by these economic storms that’s why I’m looking forward this morning to sharing with you my perspective on the importance of focusing on the situation and prospects of low and moderate income working Americans in my remarks this morning I’m going to start by discussing the types of jobs being generated in the current recovery certainly the pace of recovery in employment has improved but it’s important to look at the types of jobs that are being created because those jobs will directly affect the fortunes and challenges of households and neighborhoods as well as the course of the recovery I’ll then suggest that we think about how the absence of a substantial number of new high-paying jobs when combined with changes in the landscape for financial services affects access generally to affordable sustainable credit finally I’ll explore some of the monetary supervisory and regulatory touch points in which the situation and prospects of low and moderate income working Americans can be addressed the Great Recession stands out for the magnitude of job losses we experienced through the downturn these factors have hit low and moderate income Americans the heart the poverty rate has risen sharply since the onset of the recession after a decade of relative stability and it now stands at fifteen percent significantly higher than the average over the last three decades and those who are fortunate enough to have held on to their jobs have seen their hourly compensation barely keeping pace with the cost of living over the past three

years while today’s seven point seven percent unemployment rate is a market improvement from the ten percent rate we reached in late 2009 it’s still higher than the unemployment rate for the 24 years before the Great Recession a span of time over which the rate averaged about six percent more over the government’s current estimate of 12 million unemployed doesn’t include nearly a million discouraged workers who say they’ve given up looking for work and eight million people who say they’re working part-time even though they prefer a full-time job a broader measure of underemployment that includes these and other potential workers stands at fourteen point three percent now about two-thirds of all job losses resulting from the recession were in moderate wage occupations occupations such as manufacturing skilled construction and office administration jobs however these occupations have accounted for less than a quarter of subsequent job gains it declines in lower wage occupations such as retail sales and food service accounted for about a fifth of the job loss but a bit more than one-half of subsequent job gains so recent job gains have been largely concentrated in lower wage occupations such as retail sales food preparation manual labor home health care and customer service furthermore wage growth has remained more muted than is typical during an economic recovery to some extent the rebound is being driven by the low-paying nature of the jobs that have been created the slow rebound also affects and reflects the severe nature of the crisis as the slow wage growth especially affects those workers who’ve become recently reemployed following long spells of unemployment in fact while average wages have continued to increase steadily for persons who remained employed all along the average wages for new hires have actually declined since 2010 the faces of low-wage Americans are diverse they include people of varying employment status race gender immigration status and other characteristics many such Americans are attached to the workforce and are deeply committed to both personal success and to making a contribution to society for purposes of reference in 2011 low-wage was defined as approximately twenty-three thousand dollars a year which is about eleven dollars and six cents per hour today about one-quarter of all workers are considered low wage they are sanitation workers office receptionist’s and nursing assistants there are single mothers of three who worry how will I be able to send my children to college next year what if my landlord raises the rent this year tens of millions of Americans are the people who ask themselves these questions every day this diverse group of workers faces numerous barriers when trying to access the labor market or advance in their current positions many of these barriers were identified in an initiative that the Federal Reserve’s Community Development function launched in 2011 over the course of a year Reserve banks across the country hosted a series of about thirty two regional discussions aimed examining the complex factors creating chronic unemployment conditions and identifying promising workforce development solutions the kinds of problems faced by low-wage workers are familiar to all of you and have long been part of the structural conditions of poverty and near poverty in America we know for example that location presents thorny challenges for many low-wage workers with in metropolitan areas jobs are not spread out evenly and job creation tends to be depressed in low-income communities as a result many low-wage workers face long commutes serious commuting difficulties due to less reliable transportation and an inadequate transportation infrastructure moreover a number of low-wage employees work non-standard hours exacerbating both transportation and childcare issues as well as personal health problems traditionally many workers find jobs through social networks and through personal connections that they have to the labor market but because low-income

individuals are typically less mobile more isolated and less socially connected than other people they’re often left out of the social networks that in private and practice lead to jobs for most Americans now among those responding to these challenges are innovative local practitioners like many of you in the room who are implementing programs designed to expand job opportunities for low-wage workers consider impact services in Philadelphia which is an organization that builds relationships with the local business community to better understand their hiring needs and then devises programs that supply those firms with appropriate skilled workers from the community the National Fund for Workforce Solutions is another example this organization works with local communities to organize funding collaborative to support regional industries so progress is being made thanks to coalition’s like yours across the country that are working for practical changes at the community level but the 21st century labor market is increasingly complex it continues to generate new challenges for example growth in sectors such as green industries and advanced manufacturing they’re creating jobs but these jobs may demand different skills access to reliable information becomes critical for workers who are considering a new job and they must carefully weigh the skills and credentials required by potential employers with the cost of training and the likelihood of gaining employment after they’ve done such training and more and more employers are requiring post-secondary credentials today a high school diploma alone is less likely to qualify an individual for a job with a path towards meaningful advancement and is demand for more credentials increases workers who lack those credentials will find it increasingly difficult to gain upward mobility in the job market many employers are looking to make the employment relationship more flexible and so are increasingly relying on part-time work and a variety of arrangements properly popularly known as contingent work this trend towards a more flexible workforce will likely continue for example while temporary work accounted for ten percent of job losses during the recession these jobs have accounted for more than twenty-five percent of net employment gains since the recession ended in fact temporary help is rapidly approaching a new record and businesses use of staffing services continues to increase contingent employment is arguably a sensible response to today’s marketplace in tension arrangements allow firms to maximize workforce flexibility in the face of seasonal and cyclical forces this flexibility may be beneficial for workers who want or need time to address their family needs however workers in these jobs often receive less pay and fewer benefits than traditional full-time or permanent workers they’re much less likely a benefit from the protections of labor and employment laws and they often have no real pathway to upward mobility in the workforce many workers who hold contingent positions do so involuntarily department of labor statistics tell us that 8 million americans say they’re working part-time jobs but would like full-time jobs these are the people in our communities who are part-time by necessity as businesses increase their reliance on independent contractors and part-time temporary and seasonal positions workers today they are far more of the responsibility and risk for managing their careers and financial security indeed the expansion of contingent work has contributed to the increasing gap between high and low wage workers and to the increasing sense of insecurity among workers flexible and part-time arrangements can present great opportunities to some workers but the substantial increase in part time workers does raise a number of concerns part-time workers are particularly vulnerable to personal shops due to lower levels of compensation the absence of meaningful benefits and even a lack of paid sick or personal leave days not surprisingly turnover is high in these part-time jobs the economic marginalization that comes with the growth of part-time and low-paying jobs is exacerbated by inadequate access to credit for many working Americans ideally people chronically short of cash

would have access to safe and sound financial institute they could provide reliable and affordable access to credit as well as good savings plans unfortunately many working Americans have no practical access to reasonably priced financial products with safe features much less the kind of safe and fair credit that’s available to wealthier customers working Americans as you know have several core financial needs they need a safe accessible affordable method to deposit and cash their checks receive deposits pay bills the crew savings they also may need access to credit to tide them over until their next cash infusion arrives they might be coming up short paying their rent making their mortgage an emergency medical expense could come up in unexpected care a car repair they might they might want access to savings for items such as education or further training or to start a business they might want some form of non-cash payment method to conduct transactions that are difficult or impossible to conduct using cash products and services that serve these core financial needs are not consistently available at competitive rates to working Americans those with low and moderate incomes might have insufficient income or assets to meet the relatively high requirements needed to establish a credit history many workers simply might not have banks in their communities or might not have access to banks that actually compete with each other in terms of pricing or customer service there’s a growing trend toward greater concentration of financial assets at fewer banks in my mind this raises doubts about whether banking services will continue to be provided at competitive rates to all income levels of customers wherever they may live according to a study of branch of bank branches which was published by NCRC in 2007 there are more persons per branch in low and moderate income census tracts than in moderate and upper income census tracks while branch building has been on the rise indications are that the increase in the number of bank offices has not occurred evenly across neighborhoods of varying incomes in fact a significant number of ma of low and moderate income families have become or are at risk of becoming financially marginalized the percentage of families earning 15 thousand dollars per year or less who reported that they have no bank account increased between 2007 and 2009 such that more than one in four families was unbanked similarly families slightly further up the income distribution earning between 25 thousand and thirty thousand per year they’re also financially marginalized thirteen percent report being unbanked and almost twenty-four percent report being under banked this combination of economic insecurity and financial marginalization has incentivized more low and moderate income families to seek out alternative financial providers to meet their financial needs some of the providers they find such as check cashers and outfits furnishing advance loans on paychecks can lead unwary workers into very deep financial holes in light of these challenges I ask questions that I know have been asked before what can economic policy do to reduce unemployment economic marginalization and the financial vulnerability of millions of lower-income working Americans there’s no simple cure to these conditions but government policymakers need to focus seriously on the problems not simply because of notions of fairness and justice but because the economy’s ability to produce a stable quality of living for millions of people is at stake our country cannot achieve prosperity without addressing the powerful undertow created by flat wages and tenuous financial security for so many millions of Americans so how can the Federal Reserve address these challenges while start with monetary policy as you know Congress has directed the Federal Reserve to use monetary policy to promote maximum employment and price stability the Federal Reserve’s primary monetary policy tool is its ability to influence the level of interest rates Federal Reserve policymakers pushed short-term interest rates down nearly 20 as the financial crisis spread and the recession work worsened in 2007 and then by late 2008 it was clear that still more policy stimulus was necessary to turn the recession around the Fed could not push short-term interest rates down

further but it could and it did use the unconventional policy tools to bring longer-term interest rates such as mortgage rates down further bed policymakers intend to keep interest rates low for a considerable time to promote a stronger economic recovery a substantial improvement in labor market conditions and greater progress towards maximum employment in the context of price stability both anecdotal evidence and a wide range of economic indicators show that these attempts are working to strengthen the recovery and that the labor market is improving nonetheless and again the millions of people who would prefer to work full-time can only find part-time work while the Federal Reserve’s monetary policy tools can be effective in promoting stronger economic recovery and job gains they have little effect on the type of jobs that are created particularly over the longer term so while monetary policy can help it does not address all of the challenges that low and moderate income workers are confronting that said the existing mandate regarding maximum employment requires policy maker on the Federal Open Market Committee to understand labor market dynamics which obviously must include an understanding of low and moderate income workers in addition to monetary policy the Federal Reserve’s regulatory and supervisory policies have the potential to address some of the challenges faced by low income consumers and communities the Federal Reserve is required by law as you all know by virtue of the Bank Holding Company Act to approve various applications such as mergers acquisitions and proposals to conduct new activities this statutory review requires an explicit consideration of public benefits and the effects of the proposed transaction on the convenience and needs of the communities to be served this assessment is as many of you know a critical opportunity for community input and analysis indeed as people with their feet firmly planted on the ground in communities across America you probably remember James Q Wilson’s theory of broken windows in community policing move in quickly when vandalism and disorder first start to appear even if it’s only a broken window or graffiti on a stop sign or else face losing the whole neighborhood as disrespect for the law rapidly spreads well it turns out that this broken window strategy is every bit as compelling when it comes to addressing the disorder that comes from sloppy practices by financial institutions if banking practices are undermining the ability of the economically marginalized to become financially included and to access the credit they need in an affordable way regulators must move in quickly to stop the disorder and repair the broken windows of financial intermediation bank supervisors should be prepared to respond to the earliest signs of trouble by requiring operationally challenged bangs to address problems quickly and completely if corrections are made then the regulator’s can move on if not then the regulator’s need to escalate enforcement swift and decisive corrective action is not always how federal bank regulators have responded to broken windows in the past in my view for example regulators response to the rampant long-running problems in loan servicing practices at large financial institutions was not Swift and was not decisive the point is that federal regulators must listen carefully to community input and analysis in order to keep track of where windows are breaking and how they’re being broken and they must carefully study and take responsibility for analyzing comments provided by organizations such as the ncrc when considering the public benefits of an application both the exam process and the application process must be strengthened as key venues for federal regulators to incorporate the voices of affected communities let me I’ll shift back to the private sector in particular to the question of whether businesses can be competitive in the current marketplace and still provide a pathway out of poverty for their

employees I’ll mention the hitachi foundation which recently set out to answer this question by identifying firms that provided upward job mobility for their employees and they found that the identified employers show noteworthy consistency and how they train and educate workers develop career ladders and craft supportive human resource policies and other motivators they also found evidence to indicate that the companies benefited from strategic and financial returns while their lower wage workers also benefited from increased earnings and career advancement in the interest of time I’m going to not now let me just go off script a little bit and also talk about the very other very interesting models in community development anchor institutions for example such as hospitals and universities which are firmly rooted in their locales can also be powerful engines for job creation the Evergreen cooperative in Cleveland Ohio is an example of a network of work launched in low-income neighborhoods that support local anchor institutions and these cooperatives were initially established to provide services to local hospitals and universities that agreed to make their purchases locally this model is effective because it capitalizes on local production and because it forges a local business development strategy that effectively meets many of the anchor institutions own needs clearly the challenges facing low-wage workers are multifaceted and are very complex in addition to the challenges that workforce development and community organizations have addressed for years structural changes in the economy heighten obstacles make the stakes higher if we fail to conquer them and therefore require new levels of openness and creativity by policymakers you are the ideal audience for this message because you know how to link federal policy making with economic empowerment ncrc has grown to an association of more than 600 community-based organizations that promote access to basic banking services to create and sustain affordable housing jobs and vibrant communities for America’s working families community-based organizations like many of those represented in this room will need to consider how to work with low-wage workers to bridge information gaps by expanding workers networks providing legitimate information and identifying new job opportunities but finally the pressure that community-based organizations exert on financial regulators must continue access to credit is an enduring challenge and the obstacles and problems all the broken windows you see on the block must be reported and explained they must be understood by the federal policymakers who are responsible for enforcing our country’s laws and regulations in the realm of access to credit by the federal policymakers who engage in the conduct of monetary policy and by the federal policymakers whose actions contribute to the shaping of the landscape for financial services in this country your voices whether you are reporting documenting monitoring analyzing proposing or even protesting must be heard your voices are crucial to alerting policymakers to the significant developments and emerging trends in the nation’s communities that must be confronted and confronted in a swift and decisive way if we’re to make prosperity a national agenda that touches every American thank you