On February 22, 2019, a sign reading “Retail Space Available” will be displayed in the window of a closed JPMorgan Chase & Co. store in the Bronx, New York. Banks have closed branches, a trend that has accelerated during the pandemic as more people manage their accounts online. Mark Kauzlarich / Bloomberg via Getty Images Hide caption
Mark Kauzlarich / Bloomberg via Getty Images
Mark Kauzlarich / Bloomberg via Getty Images
Updated at 11:29 am
George Holland, the Mayor of Moorhead, Miss., Recalls the feeling when he heard that Regions Bank closed its branch in his small rural town a few years ago.
“That was actually the only bank in our community and the closest bank was probably eight, nine miles from Indianola,” said Holland. “I thought, ‘What do we do now?’ “”
Banks have permanently closed branches for years, but the number of closings hit a record high in 2020 as the pandemic accelerated the transition of many customers to online banking.
According to a balance sheet by S&P Global Market Intelligence, the banks closed 3,324 branches last year.
Given the cost of running branches, this makes financial sense for banks.
“The reality is that the vast majority of branch activity is non-revenue generating,” said Steven Reider, president of consulting firm Bancography, advising banks in branch locations. “In fact, it’s a cost-bearing activity.”
And bank branch closings are particularly affecting isolated neighborhoods in major cities or towns like Moorhead – a predominantly African-American community in the heart of the Mississippi Delta.
Research by the National Community Reinvestment Coalition shows that poor communities, rural communities, and areas with high concentrations of black and brown residents are hardest hit.
One reason is that regulators took action against costly overdraft fees a decade ago, making it less profitable for many banks to have branches in these communities.
“It is good that banks are no longer charging these fees, but it is bad that they are no longer serving these neighborhoods,” said Jesse Van Tol, CEO of NCRC.
When banks close, the impact can go beyond the inconvenience. It can also push people to more expensive options like check cashing businesses or payday lenders.
“Lower-income consumers don’t necessarily have cars,” Reider said. “You don’t have a lot of options. And then of course these payday lenders come in and that just continues a low-income cycle because consumers spend excessive amounts just to manage their financial services.”
It’s a trend that is unlikely to be reversed as the pandemic has pushed more customers to bet on smartphones and computers.
As the banks close, many communities have looked for not-for-profit credit unions and other alternatives to fill the void.
“In the past 60 days, two mayors have turned to me and said, ‘Would you bring a bank branch here?’ “said Darrin Williams, CEO of Southern Bancorp, which specializes in underserved communities.
Williams understands that for small towns, a bank can be more than a place to cash a check. It can also be the place to catch up or gossip about what’s going on in town.
“In many of the rural communities where we operate, the bank branch is part of the social fabric,” said Williams. “If you go to Truman, Ark. On a Friday payday, there will be 10 people in line. People want to come to this bank branch because it’s social.”
Although a lot of banking can now be done online, an FDIC survey found that 83% of people encountered a cashier or other bank employee at least once in 2019. In the same year, more than 40% of rural customers made at least 10 visits to the bank.
Fortunately for Moorhead, a not-for-profit credit union came into play when Regions Bank pulled out.
The regions donated the branch building to Hope Credit Union and provided funding for transition costs. Mayor Holland says it was actually an improvement. The credit union gained more customers, offered more services, and even added an ATM – something the old bank didn’t have.
“I can’t say enough about what that meant for us to do banking here in our city,” said Holland. “To have all these resources here in our city without having to travel.”
But not all cities or districts are lucky.
Steven Jackson, a community commissioner in Shreveport, La., Is watching the closings alert.
“Many banks have used the pandemic to justify the downsizing even more,” says Jackson.
And he’s worried about what that does to neighborhoods and cities like his.
“When boys and girls drive by and see empty buildings or the building that was once a bank is turned over to a payday lender, what message are we sending?” he asks. “Isn’t my neighborhood a priority?”