What if every American had the same Federal Reserve perks as banks?

Democratic Sen. Sherrod Brown’s old proposal gets new attention after Silicon Valley Bank’s collapse.

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Hand are visible holding a stack of bills of U.S. currency in front of the keypad of an ATM.
Taking money out of an ATM. (EyeEm/Getty Images)

In the aftermath of Silicon Valley Bank's failure earlier this month, the Federal Reserve announced it was further increasing its support for commercial banks, creating a plan that effectively backstopped all deposits, insured and uninsured, across the U.S. financial system. Banks with accounts with the Fed enjoy a number of perks like higher interest rates and instant transfers not available to average Americans and businesses, but one proposal could change that by creating a “public banking option,” potentially helping millions of people.

In 2020, Sen. Sherrod Brown, D-Ohio, introduced a bill to create “FedAccounts” as part of the response to the COVID-19 pandemic. It didn’t go anywhere at the time, but under Brown’s proposal, anyone who opened up the account would receive a debit card, online account access, automatic bill-pay and mobile banking, as well as access to ATMs at post offices.

Much in the same way banks deal directly with the Federal Reserve, the proposal would allow everyone to open up a no-fee, no-minimum-balance account through the central bank. The program would give everyone access to complimentary tools like instant transfers and higher interest rates on their accounts.

Brown’s proposal was meant to help the federal government get COVID relief payments to all Americans, something the IRS and the Treasury Department struggled to do. With FedAccounts, its proponents argue, the government could also better track and transfer funds. In October, the Government Accountability Office said as many as 10 million Americans who were eligible might not have received COVID relief payments.

Sen. Sherrod Brown.
Sen. Sherrod Brown, D-Ohio. (Tom Williams/CQ Roll Call via Getty Images)

“For too long, our banking system has served those at the top, turning away low-income families and families of color,” Brown said in a statement to Yahoo News. “In 2020, during the early months of the COVID crisis, Congress passed direct cash relief for families — but we struggled to get those emergency funds to people that didn’t have bank accounts.”

“We must continue to learn about these recent bank failures and we must strengthen our financial guardrails — that is what it means to have a government on the side of working families,” he added.

A 2021 survey from the Federal Deposit Insurance Corporation found that 4.5% of U.S. households (approximately 5.9 million) did not have someone with a checking or savings account at a bank or credit union. The rates were higher among “lower-income households, less-educated households, Black households, Hispanic households, working-age households with a disability, and single-mother households.” The reason cited most, by more than a fifth of respondents, for not having an account was that they did not have “enough money to meet minimum balance requirements.”

The concept of public banking via FedAccounts was put forward in 2018 by Morgan Ricks and Lev Menand, former Obama administration officials, and John Crawford, a law professor at the University of California, Hastings.

“The time has come to end this special privilege of banks. We propose giving the general public — individuals, businesses, and institutions — the option to have a bank account at the Federal Reserve,” they wrote, adding, “The FedAccount program would bring genuinely transformational change to the monetary-financial system, in ways both obvious and unexpected.”

A guards stands at a building's entryway beneath a large seal reading: Board of Governors, the Federal Reserve System.
The Federal Reserve's William McChesney Martin Building in Washington, D.C. (Alex Wong/Getty Images)

Crawford, one of the writers of the original FedAccounts proposal, told Yahoo News that he thought the events of the last 10 days have helped strengthen the case for FedAccounts.

“I do think the Fed’s actions and some of the discussions over the past week have helped throw into relief the fact that banks are not mere private intermediaries, but serve an essential public function, by creating and managing the majority of the country’s money supply,” Crawford said. “The upshot is that banks are still private businesses, but with a significant public aspect to them. They have great privileges and should enjoy robust public support, but also bear great responsibility and should be subject to robust supervision — a sort of financial Spider-Man principle.”

The idea of FedAccounts, which would have to pass Congress to be enacted, would inevitably face pushback from influential private banks that could lose customers to a federal competitor. Other critics of the idea have argued that FedAccounts would be less attractive to customers than proponents admit, in part due to privacy concerns. The proposal put forth by Brown would not offer loans or credit cards, the other primary sources of revenue for financial institutions.