One of the Federal Reserve’s goals is to promote the stability of the country’s financial system, a part of that goal is to monitor and research the country’s thousands of banks, from the J.P. Morgans down to the Hooterville Bank and Trust. A recent report looked at a number of these banks and trends in the financial industry, and their potential impact on rural parts of the country. “Perspectives from Main Street: Bank Branch Access in Rural Communities” specifically examined bank closures and their effect.
Bank branch closures have become commonplace in the industry, thanks to technological changes that make branches less important, as well as financial industry consolidation. The recent report found that a majority of counties in the United States have lost bank branches since 2012. Some rural counties have seen considerable declines. The report identified 44 counties that it considers “deeply affected,” defined as a county with 10 or fewer branches in 2012 and lost at least 50 percent of those by 2017.
Thirty-nine of these counties, or 89 percent, are considered rural counties. Six of them are in Georgia.
Calhoun, Hancock, Marion, Quitman, Stewart and Wheeler counties are all considered “deeply affected.” That classification of rural is pretty strict, as the approximately 8,000 population Marion County is considered urban due to its inclusion in the Columbus Metropolitan Statistical Area.
Despite the increase in mobile and online banking, branches continue to be an important channel for consumers, particularly for deposit and withdrawal transactions and for resolving problems. Rural communities also tend to have lower internet connectivity and usage, and thus a correspondingly higher usage of bank branches. Closures hit rural communities that much harder. Perhaps most importantly, bank branches also frequently help facilitate loans. “Community groups have also raised concerns about the potential for industry consolidation to blunt the effectiveness of the Community Reinvestment Act (CRA), which encourages banks to help meet the credit needs of the communities they serve,” said the report.
And this concern regarding loans is not just because those looking for loans may be comfortable going into the local branch, meeting with their friend from Rotary or Kiwanis, and working out a plan. The report found data that showed a relation between interest rates and location. “The presence of a bank branch in the local community, the distance between a small business and its lender, and the degree of bank market concentration appear to have a meaningful impact on credit access among small businesses. In particular, studies find that interest rates increase as the distance between a business and the local branch of its lender grows —a potential reason why the majority of small businesses borrow from institutions with a local presence.”
The Federal Reserve conducted 12 listening sessions to try and find potential solutions, nine of the listening sessions were in counties deeply affected by closures. Eleven of the 12 were held in rural counties. A number of potential fixes were identified but few that would be immediate.
Rural development challenges are getting that much harder.
To see the full report: https://www.federalreserve.gov/publications/files/bank-branch-access-in-rural-communities.pdf
