Loss of Branch Banks Reduces Financial Services for Rural, Report Says

Urban and rural America lost branch banks at a similar rate from 2012 to 2017, according to the Federal Reserve. But the loss could have graver consequences for a larger proportion of rural areas.

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About 40 percent of rural counties experienced a net loss of branch banks from 2012 to 2017, according to a new report from the Federal Reserve System.

The study found that 39 of these rural counties were “deeply affected” by the loss of banking services, meaning they had 10 or fewer bank branches in 2012 and lost at least half that number over the five-year period.

The deeply affected rural counties were clustered primarily in the Southeast, Southwest, and upper Great Plains. Five urban counties were also considered deeply affected by branch closures. (Click on the map above to enlarge it.)

The hard-hit counties shared a set of economic and demographic trends, the report said.

Rural counties deeply affected by branch closures had higher poverty rates, lower median incomes, a higher share of their population with less than a high school degree, and a higher share of their population who were African American relative to all rural counties. 

Rural counties deeply affected by branch-bank closures started the study-period with slightly more branches per capita than rural counties overall. But by the end of the study period in 2017, those same counties had less than half as many branches per capita, according to the study.

Click the table to enlarge it. (Federal Reserve)

The closure of branch banks can lead to the loss of financial services that harms residents and entire communities.

“Access to a robust suite of financial services is critical for families and businesses so they can successfully manage their financial lives, and build a cushion of wealth that can provide stability and support economic opportunity and mobility over the long term,” the report said. Researchers called on policymakers and other leaders to find new strategies to provide financial services in underserved areas.

The report looked only at changes in branch banks from 2012 to 2017, so the findings do not reflect the entire landscape of rural communities that lack adequate banking services.

Nationwide, the number of branch banks declined by about 7 percent during the study period. Both rural and urban counties lost branch banks at the same rate, the report says. Among counties that had a net loss of branch banks, rural losers declined by 14 percent while urban losers declined by 9 percent. 

Technology can help customers overcome obstacles to financial services. But rural customers were less likely than urban ones to use tools like online banking. Also less likely to use online tools were customers who were older, had lower incomes, or had  fewer years of formal education.

How this story defines rural: This story uses the Office of Management and Budget metropolitan statistical area system to define rural. Rural counties are defined as those that are not in a metropolitan statistical area or MSA. In this story, rural is synonymous with nonmetropolitan. There are numerous ways to define rural; each has advantages and disadvantages. You can learn more (much more!) from the USDA Economic Research Research and the U.S. Census.

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