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Rural America's banking problem

Illustration: Aïda Amer/Axios

Add one more thing to the list of rural America's ails: diminished access to banks.

Driving the news: The shuttering of branches across the U.S. had a disproportionate negative effect in certain areas, according to new research from the Federal Reserve.

  • Underbanked rural communities were left with even fewer banks in the span of five years.
  • Urban communities didn't see the same substantial declines.

Why it matters: Lack of banking services could help propel the issues plaguing rural America — including population declines (as more people move to urban areas) and economic malaise — and exacerbate the rural-urban divide.

  • Access to banking services is crucial to "build a cushion of wealth that can provide stability and support economic opportunity and mobility over the long term," per the Fed.

The latest: The Fed identified 44 counties that had 10 or fewer branches in 2012 and then lost at least half of those banks by 2017. 89% of those counties are rural, including places like Cochran County in Texas and Missaukee County in Michigan.

  • Rural counties hit the hardest by branch closures had older, poorer and less educated populations than other rural counties, Fed researchers note — groups that tend to rely on nearby banking services the most.

Of note: While in-person banking has become less relevant with the rise of online and mobile banking, that's not the case for everyone.

What they're saying: Community members told the Fed in a series of "listening sessions" that digital banking wasn't as accessible for older bank customers, the report notes.

  • Others said internet and cell service are "not sufficient, reliable, or affordable enough in their communities to allow for a substitution to online banking."
  • Some participants told the Fed that the expertise of local bankers who, for example, "understand homeownership in rural communities" is irreplaceable.
  • Lacking adequate substitutes, residents turn to non-bank alternatives — payday lenders, private ATMs (that can have high fees) or prepaid cards — and drive long distances to access certain financial services, or go without them altogether.

Between the lines: The challenges for bank business in rural communities are precisely ones that banks can help solve.

  • In a survey of community banks by the Conference of State Bank Supervisors, some bankers "described being trapped in shrinking rural markets that are saturated and economically stagnant," which they cite as a risk to attracting and retaining core deposits.

The bottom line: "The loss of banks creates direct costs in terms of residents’ access to financial services, but there are also large indirect costs,” Richmond Fed president Thomas Barkin tells Axios in a statement.

  • "They invest in their communities, educate others about finances, create incentives for other businesses and signal a community’s vibrancy," Barkin says.
  • The Richmond Fed, which counts Maryland through South Carolina plus most of West Virginia as part of its district, hosted its first event focused on rural America earlier this year.

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