The closure of small businesses during the pandemic has had a lasting change on the flavor of local communities. Today, the businesses that survived are under threat due to the closure of bank branches that fuel local economies.
A new report from the National Community Reinvestment Coalition found that the monthly bank branch closure rate doubled during the pandemic, leading to the disappearance of more than 4,000 branches from March 2020 to October 2021. These closures affected low to moderates and hard-colored communities, the report’s authors found.
How did we come here?
After the Great Recession of 2008, large banks merged and consolidated, then acquired smaller banks and their branches. The shift to internet and mobile financial transactions has also contributed to the loss of commercial banking companies. As a result, communities saw a decline of small banks with local branches where residents knew their tellers or small business owners had a relationship with a loan officer.
The trend accelerated in 2020 as banks cut costs by eliminating physical locations.
During the pandemic, branch closures exceeded the peak of closures after the Great Recession. From October to December 2020, nearly 1,500 branches closed.
A third of the 7,425 branches that closed from 2017 to 2021 were in neighborhoods with low-to-moderate income households or where a majority of people of color lived, according to NCRC analysis of Federal Deposit Insurance Corp data. .
“Even a small number of closures can have a huge impact on those communities that already have few branches to choose from,” the authors wrote.
Portland, Oregon, experienced the most bank branch closures of any metro area from 2017 to 2021, losing 20% of its bank branches. Hartford, Connecticut and Baltimore ranked second, each losing 14% of their bank branches.
The biggest banks closed the most branches, with Wells Fargo topping the list with 993 closures. The mergers led to the closure of most physical sites, the report’s authors found. Of the top 25 banks that have closed branches since 2017, more than half of firms had pursued or completed mergers.
And the pace of closings does not seem to be slowing down. Grand Rapids, Michigan, which has seen the largest increase in the nation, saw 36 branches close during the pandemic, down from 1 in the previous 20 months. Boston has seen 55 pandemic shutdowns, 14 times what it saw before the pandemic.
“This suggests that banks are simply rushing to close as many branches as they can, as fast as they can, wherever they can,” the authors wrote in the report.
When banks close branches, they reduce operating and personnel costs. “In the sense of a merger, it saves a lot of money. If you’re a bank investor, you’re looking for reasons to support the merger,” Jason Richardson, NCRC’s senior director of research and one of the report’s authors, said in an interview.
What is the impact of branch closures?
Opportunities to build credit and wealth are lost when branches close. And more and more people are turning to fringe banking services such as payday loans and predatory lending, experts warn.
In areas where banks have closed, lending to small businesses is declining. Small businesses that have a branch relationship may no longer have a contact at a bank when it closes.
“It may be more difficult for them to access credit when they need it or to grow their business,” Richardson said.
More and more people have turned to mobile and internet banking in recent years, but these are not completely replacing physical bank branches, said Bruce Mitchell, NCRC senior research analyst and co-author of the report. . During the pandemic, bank closures have disproportionately affected rural communities and low-income adults, many of whom lack access to mobile banking and need more in-person locations. According to a 2021 Pew Research survey, 43% of low-income adults do not have broadband service.
A 2019 FDIC survey found that most “banked” respondents — those with at least one household member with a checking or savings account — had been to a bank in the past year. . “Branches still matter,” Richardson said. “They are important for small business lending, especially where there is already little investment.”
The authors of the report recommended that the Community Reinvestment Act of 1977, which requires banks to meet the credit needs of the communities where they operate, be extended to non-bank financial services.
“With the increase in the number of banks that are not dependent on a geography defined by their bank branches,” Mitchell said, “the ARC desperately needs to be modernized to reflect this very changing financial market that we have in this country.”
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