Finance and Economics Discussion Series (FEDS)
June 2022 (Revised May 2025)
Cost of Banking for LMI and Minority Communities
Marco Migueis, Michael Suher, and Jessie Xu
Abstract:
We test whether minimum account balances to avoid fees, maintenance fee amounts, and nonsufficient funds charges are systematically different in LMI and majority-minority communities relative to other communities and find that they are generally higher. The minimum account balance to avoid fees on a noninterest checking account is about $45 higher on average in LMI Census tracts than in higher income tracts, and more than $70 higher on average in majority-minority tracts than in majority-white tracts. We investigate potential sources of these differences such as bank business models, competition among providers of financial services, and other demographic characteristics of the tracts. Opportunities for lending income, bank operating costs, and bank size can largely account for the higher cost of retail banking services in LMI and majority-minority communities.
Keywords: Bank fees; deposit accounts; LMI; majority-minority
DOI: https://doi.org/10.17016/FEDS.2022.040r1
PDF: Full Paper
Original Paper: PDF | Accessible materials (.zip)
Disclaimer: The economic research that is linked from this page represents the views of the authors and does not indicate concurrence either by other members of the Board's staff or by the Board of Governors. The economic research and their conclusions are often preliminary and are circulated to stimulate discussion and critical comment. The Board values having a staff that conducts research on a wide range of economic topics and that explores a diverse array of perspectives on those topics. The resulting conversations in academia, the economic policy community, and the broader public are important to sharpening our collective thinking.