Bank Branch Closings Tilt Toward Poorer Areas

In 2010, for the first time in 15 years, more bank branches closed than opened across the United States. An analysis of government data shows, however, that even as banks shut branches in poorer areas, they continued to expand in wealthier ones, despite decades of government regulations requiring financial institutions to meet the credit needs of poor and middle-class neighborhoods.

The number of bank branches fell to 98,517 in 2010, from 99,550 the previous year, a loss of nearly 1,000 locations, according to data compiled by the Federal Deposit Insurance Corporation.

Banks are expected to keep closing branches in the coming years, partly because of new technology and automation and partly because of the mortgage bust and the financial crisis of 2008. New regulations will also cut deeply into revenue, including restrictions on fees for overdraft protection — a major moneymaker on accounts aimed at lower-income customers. Yet the local branch remains a crucial part of the nation’s financial infrastructure, banking analysts say, even as more customers manage their accounts via the Internet and mobile phones.

“In a competitive environment, banks are cutting costs and closing branches, but there are social costs to that decision,” said Mark T. Williams, a banking expert at Boston University and a former bank examiner for the Federal Reserve. “When a branch gets pulled out of a low- or moderate-income neighborhood, it’s not as if those needs go away.”

Mr. Williams and other observers express concern that the vacuum will be filled by so-called predatory lenders, including check-cashing centers, payday loan providers and pawnshops. The F.D.I.C. estimates that roughly 30 million American households either have no bank account or rely on these more expensive alternatives to traditional banking.

The most recent wave of closures gathered steam after the financial crisis in 2008, as banks of all sizes staggered under the weight of bad home loans. In some cases, banks with heavy exposure to risky mortgage debt simply cut branches as part of a broader restructuring. In other cases, banking companies merged and closed branches to consolidate.

Whatever the cause, there were sharp disparities in how the closures played out from 2008 to 2010, according to a detailed analysis by The New York Times of data from SNL Financial, an information provider for the banking industry. Using data culled from the Federal Deposit Insurance Corporation and ESRI, a private geographic information firm, SNL matched up the location of closed branches with census data from the surrounding neighborhood.

In low-income areas, where the median household income was below $25,000, and in moderate-income areas, where the medium household income was between $25,000 and $50,000, the number of branches declined by 396 between 2008 and 2010. In neighborhoods where household income was above $100,000, by contrast, 82 branches were added during the same period.

“You don’t have to be a statistician to see that there’s a dual financial system in America, one for essentially middle- and high-income consumers, and another one for the people that can least afford it,” said John Taylor, president of the National Community Reinvestment Coalition, a group that advocates for expanding financial services in underserved communities.

“In those neighborhoods, you won’t see bank branches,” he added. “You’ll see buildings that used to be banks, surrounded by payday lenders and check cashers that cropped up.”

Wayne A. Abernathy, an executive vice president of the American Bankers Association, disputed Mr. Taylor’s conclusion, as well as the significance of the data.

“You need to look at the context,” he said. “We’re looking at a pool of more than 95,000 branches, and we’ve had several hundred banks fail, so what would be surprising is if no branches had closed.”

The Community Reinvestment Act, signed into law more than three decades ago in an effort to combat discrimination and encourage banks to serve local communities, requires financial institutions to notify federal regulators of branch closings. But legal experts say the federal watchdogs that are supposed to enforce the law have been timid.

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Christopher Maag contributed reporting.

via nytimes.com