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We explore dynamics of limited attention in the $35 billion market for checking overdrafts, using survey content as shocks to the salience of overdraft fees. Conditional on selection into surveys, individuals who face overdraft-related questions are less likely to incur a fee in the survey month. Taking multiple overdraft surveys builds a \"stock\" of attention that reduces overdrafts for up to two years. The effects are significant among consumers with lower education and financial literacy. Individuals avoid overdrafts by making fewer low-balance debit transactions and cancelling automatic recurring withdrawals. The results raise new questions about consumer financial protection policy.

We examine auditor independence in the banking industry by analyzing the relation between fees paid to auditors and the extent of earnings management through loan loss provisions (LLP). We also examine whether this relation differs across large banks whose managements are required under the Federal Deposit Insurance Corporation Improvement Act to evaluate internal control over financial reporting and whose auditors must attest to the effectiveness of such internal controls, and small banks that are not subject to those requirements. We find that unexpected auditor fees are unrelated to earnings management for large banks. For small banks, we find greater earnings management via under-provisioning of LLP by banks that pay higher unexpected total and nonaudit fees to the auditor. These results suggest that auditor fee dependence on the audit client is associated with earnings management via abnormal LLP and is a potential threat to auditor independence for small banks. Our findings are relevant to policymakers contemplating new regulations in light of the recent banking crisis.

PurposeUnbanked status in the United States varies across the population, but the phenomenon of being unbanked tends to be more pronounced for Black households. This paper extends the current body of literature by conceptualizing banked status as an element of financial inclusion and by expanding the number and type of variables used to describe banked status.Design/methodology/approachThis study’s theoretical orientation was informed by the work of Blanco et al. (2019). Survey data used in this study were gathered between May 2021 and February 2022 by Elevate's Center for the New Middle Class. Data were analyzed as a secondary dataset for this study. Three methods were used to evaluate the data. First, sample descriptives were calculated. Second, a correlation analysis was conducted to evaluate the associations between variables and to ensure that multicollinearity would not be an issue at the third stage of analysis. Third, a logistic regression was estimated to identify the variables that were significantly associated with being banked (i.e. holding a checking or savings account) (coded 1) or being unbanked (coded 0).FindingsIn this study, 17% of Black households were currently excluded from the financial marketplace. Factors of particular importance in describing unbanked status include being younger than age 55, identifying as male, being married, reporting higher income, relying on the use of credit more often, experiencing employment/financial stress more frequently, less trust in mainstream banking institutions, and inaccessibility to banks and credit unions. Implications for policy and practice are discussed.Originality/valueThis study adds to the financial inclusion literature by illustrating how unbanked status in the United States varies across the population, but that in general, a few common markers differentiate the banked and unbanked status of Black households. Factors of particular importance in describing unbanked status include being younger than age 55, identifying as male, being married, reporting higher income, relying on the use of credit more often, experiencing employment/financial stress more frequently, less trust in mainstream banking institutions, and inaccessibility to banks and credit unions. Implications for policy and practice are discussed.

Inspired by the success of \"automatic enrollment\" in increasing participation in defined contribution retirement savings plans, policymakers have put similar policy defaults in place in a variety of other contexts, from checking account overdraft coverage to home-mortgage escrows. Internet privacy appears poised to be the next arena. But how broadly applicable are the results obtained in the retirement-savings context? Evidence from other contexts indicates two problems with this approach: the defaults put in place by the law are not always sticky, and the people who opt out may be those who would benefit the most from the default. Examining the new default for consumer checking account overdraft coverage reveals that firms can systematically undermine each of the mechanisms that might otherwise operate to make defaults sticky. Comparing the retirement-savings default to the overdraft default, four boundary conditions on the use of defaults as a policy tool are apparent: policy defaults will not be sticky when (1) motivated firms oppose them, (2) these firms have access to the consumer, (3) consumers find the decision environment confusing, and (4) consumer preferences are uncertain. Due to constitutional and institutional constraints, government regulation of the libertarian-paternalism variety is unlikely to be capable of overcoming these bounds. Therefore, policy defaults intended to protect individuals when firms have the motivation and means to move consumers out of the default are unlikely to be effective unless accompanied by substantive regulation. Moreover, the same is likely to be true of \"nudges\" more generally, when motivated firms oppose them.

The fringe banking industry, including payday lenders and check cashers, was nearly nonexistent three decades ago. Today it generates tens of billions of dollars in annual revenue. The industry's growth accelerated in the 1980s with financial deregulation and the working class's declining resources. With current Population survey data, we used propensity score matching to investigate the relationship between fringe loan use, unbanked status, and self-rated health, hypothesizing that the material and stress effects of exposure to these financial services would be harmful to health. We found that fringe loan use was associated with 38 percent higher prevalence of poor or fair health, while being unbanked (not having one's own bank account) was associated with 17 percent higher prevalence. Although a variety of policies could mitigate the health consequences of these exposures, expanding social welfare programs and labor protections would address the root causes of the use of fringe services and advance health equity.

We compare fees charged by investment banks for conducting IPOs in the United States and Europe. In recent years, the \"7% solution,\" as documented by Chen and Ritter (2000), has become even more prevalent in the United States, and is now the norm for IPOs raising up to $250 million. The same banks dominate both markets, but European IPO fees are roughly three percentage points lower, are much more variable, and have been falling. We review explanations for the gap in spreads and find the evidence consistent with strategic pricing. U.S. issuers could have saved over $1 billion a year by paying European fees.

This article examines the impact of leveraged buyout firms' bank relationships on the terms of their syndicated loans. We examine a sample of 1,590 loans financing private equity sponsored leveraged buyouts between 1993 and 2005, and find that private equity firms' bank relationships are an important factor in cross-sectional variation in the loan interest rate and covenant structure. Our results indicate that bank relationships formed through repeated interactions reduce inefficiencies from information asymmetry and allow leveraged buyouts sponsored by private equity firms to occur on favorable loan terms. A one-standard-deviation increase in bank relationship strength is associated with an 8-basis-point (3%) decrease in the spread and a 0.21-basis-point (4%) increase in the maximum debt to EBITDA covenant. We also find evidence that banks price loans to cross-sell other fee business. A one-standard-deviation increase in both bank relationship strength and cross-selling potential translates into as much as a 4-percentage-point increase in equity return to the leveraged buyout firm.

Purpose The purpose of this paper is to investigate the determinants of financial inclusion (FI) in Sub-Saharan Africa (SSA). Design/methodology/approach The paper uses the World Bank country-level data from 20 SSA countries for the year 2014. Findings The empirical findings in this study indicate that illiteracy is the major hindrance to FI in SSA. The findings provide useful information to government agencies and international development organisations. Also, the findings can help accelerate and strengthen FI strategies among SSA countries. Research limitations/implications Some countries were excluded from the final analysis due to lack of data. Practical implications In the last two decades, there has been renewed interest in fighting financial exclusion in Africa. Therefore, this study provide evidence which clearly shows that enhancing literacy levels in a country can immensely contribute towards building the financially inclusive societies in the SSA region. Originality/value To the best of the author’s knowledge, this is the first study to empirically test the determinants of FI in SSA using the World Bank FI data set. Furthermore, this is the first attempt to estimate the determinants of FI with a combined data of SSA countries.

Purpose Using data from 104 countries over a six-year period (2009-2014), this study proposes a value-added predictor in service industries based on the eight indicators of the prosperity index, namely economy, entrepreneurship and opportunity, governance, education, health, safety and security, personal freedom and social capital. Design/methodology/approach The fuzzy-set qualitative comparative analysis (fsQCA) and complexity theory, a relatively novel approach for developing and testing the conceptual model, are used for asymmetric modelling of value added in service industries, and the predictive validity of proposed configural model is tested. Findings Apart from advancing method and theory, this study simulates causal conditions (i.e. recipes) leading to both high and low scores of the value added of services. The configural conditions indicating a high/low level of value added in service industries can be used as a guiding strategy for marketers, investors and policy makers. Originality/value An analysis of worldwide data provides complex models demonstrating both how to regulate country conditions to achieve a high value-added score and select a foreign country for investment that offers a high level of value-added service.