6. The State: Regulating, Nudging, and Educating for Financial Inclusion

The subprime mortgage crisis in the United States in 2008 demonstrated very clearly why the state’s role in bank regulation is crucial. Moreover since more vulnerable people are being brought into the financial system, the state will need to ensure that their interests are protected. The state has various tools it can use to achieve this protection, and this chapter will examine these, including regulating, “nudging”, and providing services including banking (e.g., postal banking) and education. This chapter finds that working for a financial marketplace that is accessible, simple, and transparent is a good place to start. Products need to be fairly and transparently priced and provided, and, especially with credit products, efforts must be made to minimize creating a debt cycle. However, this is not sufficient. The state is the only actor able to ensure that commercial actors’ asymmetric power (relative to vulnerable people) is controlled. Nudging, delivering services, and educating have their role, but regulation and education on financial literacy are crucial.