Is the main street bank becoming a thing of the past? Over the last three years, banks have been steadily closing branches around the country. Many small communities are finding themselves without a bank branch for the first time since the Great Depression. U.S. banks and thrifts shut 2,267 branches in 2012, according to SNL Financial, a Charlottesville, Va., research firm.
According to a recent Celent study, branch closing is long overdue. “Branch growth over the last 40 years has dramatically exceeded US population growth. In 1970, there were approximately 107 branches per million individuals. By 2011, that had grown to 270 branches per million.” Banks cite the immediate reason for closures as a need to cut costs and a general consumer shift towards online and mobile banking.
While bank adoption of online technology is indeed essential, the move seems a bit premature given the fact that the online infrastructure needed to support full service remote banking is not yet in place. For instance, almost every major bank in the country still requires business owners to apply for business loans in person. Online applications are not accepted. Without a community bank branch, small business owners around the country will be forced to seek alternative means of financing.
There is also evidence to suggest that many of the communities that were targeted by predatory mortgage lenders are the same communities losing local branches. Those under-served communities tend to be low-income communities with a high percentage of unbanked (no checking or savings account) and underbanked (has an account but relies on alternative means of financing like check cashing) residents. A recent CFED study cited Miami, Florida as the city with the largest population of unbanked residents. Texas had the most unbanked counties on the list, and Bronx County in New York came in second on the top ten list with 20.8% of its residents unbanked.
Government regulations have also forced many small community banks to close over the last three years. The Dodd-Frank Act was designed to regulate the banking and lending industries and decrease the likelihood of another financial catastrophe. Unfortunately, an unintended consequence is soaring costs for community banks struggling to comply with the new regulations. Many of those banks are located in smaller communities. The FDIC released a report last month that stated that no new community bank charters have been granted since 2011 due, in part, to Dodd-Frank.
While there are online financial resources available to those residents who seek them out, the loss of local bank branches is already impacting the small business community. In order to make banking accessible to all, the industry as a whole must continue to invest time and resources into improving online technology, automation, and community education.
Main Street Photo via Shutterstock
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Complying with government regulation is a huge burden to the small community bank, but even small local banks can leverage online banking for their benefit. I use my smartphone to make deposits and fund transfers and can get 3G coverage or better even in the rural area around my parent’s home.
While actual or anticipated difficulties in meeting the requirements of Dodd Frank may very well have led to some bank closures, we don’t really know the true impact of the regulations. It’s a large leap from Jon Carney’s premise that no one really knows the cost of complying with Dodd Frank to your statement that “Government regulations have also forced many small community banks to close over the last three years.” I suspect that many of those banks were already poorly managed, under capitalized, non-compliant and/or operating on very thin margins anyway. The sentiment that Dodd Frank bears such a large responsibility for community bank closures is an attention grabbing headline, but where’s the real proof?
Please note,the sentiments expressed in this post are the sole opinions of the writer.
Customers, personal as well as corporate, are a necessary evil for banks. They are yet to grasp that these are the people who really sign their paychecks, not Wall Street. As the do more with less, eventually they will have less and less to do less for. Take care of the main street customers and Wall Street will take care of itself.
I worked for a bank at one time and for the past 35 years banks are my company’s primary customers.