Big banks are not abandoning poor and minority customers

By Cheyenne Hopkins

Headlines proclaiming “banking deserts” have become frequent fodder for critics who claim big banks are abandoning low-income and minority communities, leaving them with little access to financial services. New research by the Bank Policy Institute, however, shows the popular narrative is incorrect.

BPI’s research note found that the percent of the U.S. population living in so-called banking deserts is actually quite low, and has barely changed since the end of the 2008 financial crisis. BPI also found that larger banks lead the industry in serving low- and moderate-income and minority consumers.

“BPI research found that residents living in lower-income and minority geographic areas have better access to bank branches than the rest of the population, and accessibility to a bank branch in those communities was also about unchanged over the post-crisis period,” said Francisco Covas, BPI head of research and author of the report. “And large banks serve a particularly high percentage of low-income and minority communities and grew their deposits at a solid pace at branches closest to those communities.”

There has been increased attention since the financial crisis to ensure consumers have access to banking services. Over the past decade, political rhetoric has claimed those communities were abandoned by large banks, giving rise to the banking desert term—defined as a census tract without access to a branch. Yet, there has been very little research done to support such claims.

BPI used data on the location of branches, deposits, and population to analyze any changes in banking access in the post-crisis period, especially in lower-income and minority geographic areas. The research found consumers are well served by branches, with access for 99 percent of residents living in low-income areas and 95 percent of residents in minority communities served by a branch. Most surprising, it showed residents living in low- and moderate-income geographic areas are less likely to be without a bank branch than residents of middle- or high-income areas.

“This research shows why it is best to use real data to drive policy because the only way to make a difference in people’s lives is to build policy based on what is really happening,” said Meg Tahyar, partner at Davis Polk & Wardwell.

The research found only about 5.9 percent of the U.S. population currently lives in a banking desert, a figure that remained roughly constant between 2010 and 2017. Despite claims to the contrary, the BPI study found a significant reduction in the share of rural residents living in a banking desert over the post-crisis period.

The BPI research tracks a bi-annual national survey published by the Federal Deposit Insurance Corporation to study the inclusiveness of the U.S. banking system. Based on the results of the 2017 survey, the share of unbanked households—those without a bank account—declined to 6.5 percent, the lowest level since 2009.  The share of underbanked households—those with a bank account but limited access to products or services outside the banking sector—also declined over the post-crisis period.

“Claims of banks abandoning low-income communities and creating ‘banking deserts’ is simply not true,” said Greg Baer, chief executive officer of the Bank Policy Institute. “Banks are serving low-income and minority communities every day with financial services. Banks know that when they succeed their communities succeed.”

In addition, when unbanked households were asked for reasons why they didn’t have a bank account, only 9.4 percent cited “inconvenient locations” as a reason. Instead, the most important factor for not having a bank account was insufficient funds to keep an account open.

Those who suggest banking deserts are growing often place the blame for this phenomenon on large banks closing branches. But the research found large banks serve substantially more low-income consumers than small banks. Large banks—those with total assets over $50 billion—serve 96 percent of the population living in low-income areas and 89 percent of residents living in LMI areas.

And the four largest U.S. banks—Bank of America, JPMorgan & Chase, Wells Fargo and Citigroup Inc.—serve 87 percent of low-income consumers, the same percentage as those served by all small banks combined. Large banks grew their deposits in low-income, LMI and minority communities twice as fast as small banks in the post-crisis period.

The coverage by large banks of residents in minority areas also is extensive, according to this new research. In particular, large banks cover 90 percent of the population in areas where the majority of the population belongs to a minority group (i.e., Black, Asian, Hispanic, Asian-Pacific Islander, and/or Native American, respectively).

The research demonstrates that banks, particularly large banks, have in no way abandoned low-and moderate-income communities. Large banks play an instrumental role in growing these communities helping provide financial services to low-income groups and minorities.

This content was supplied by BPI and published by WP BrandStudio. The Washington Post newsroom was not involved in the creation of this content. 

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