Perspectives from Main Street: Bank Branch Access in Rural Communities November 2019 B O A R D O F G O V E R N O R S O F T H E F E D E R A L R E S E R V E S YSTEM Perspectives from Main Street: Bank Branch Access in Rural Communities November 2019 B O A R D O F G O V E R N O R S O F T H E F E D E R A L R E S E R V E S YSTEM This and other Federal Reserve Board reports and publications are available online at https://www.federalreserve.gov/publications/default.htm. To order copies of Federal Reserve Board publications offered in print, see the Board’s Publication Order Form (https://www.federalreserve.gov/files/orderform.pdf) or contact: Printing and Fulfillment Mail Stop K1-120 Board of Governors of the Federal Reserve System Washington, DC 20551 (ph) 202-452-3245 (fax) 202-728-5886 (email) [email protected] iii Acknowledgments The insights and findings referenced throughout this Listening Session Outreach report are the result of the collaborative effort, input, and analysis of the following teams: Bonnie Blankenship, Federal Reserve Bank of Cleveland Overall Project Coordination Jeanne Milliken Bonds, formerly of the Federal Reserve Bank of Richmond Nathaniel Borek, Federal Reserve Bank of Andrew Dumont, Board of Governors of the Philadelphia Federal Reserve System Meredith Covington, Federal Reserve Bank of Amanda Roberts, Board of Governors of the St. Louis Federal Reserve System Chelsea Cruz, Federal Reserve Bank of New York Andrew Dumont, Board of Governors of the Trends in the Availability of Federal Reserve System Bank Branches Sameera Fazili, Federal Reserve Bank of Atlanta Adrian Franco, Federal Reserve Bank of New York Jackie Gausvik, Federal Reserve Bank of Curie Chang, Board of Governors of the Federal Minneapolis Reserve System Ben Horowitz, Federal Reserve Bank of Minneapolis Andrew Dumont, Board of Governors of the Michou Kokodoko, Federal Reserve Bank of Federal Reserve System Minneapolis Craig Nolte, Federal Reserve Bank of San Francisco Use of Bank Branches by Consumers Patrick Pontius, Federal Reserve Bank of Atlanta Amanda Roberts, Board of Governors of the and Small Businesses Federal Reserve System Noelle St.Clair, formerly of the Federal Reserve Andrew Dumont, Board of Governors of the Bank of Philadelphia Federal Reserve System Nisha Sutaria, Federal Reserve Bank of Atlanta Alejandra Lopez-Fernandini, Board of Governors of Marion Williams, Federal Reserve Bank of Atlanta the Federal Reserve System Ellen Merry, Board of Governors of the Federal Reserve System v Contents Executive Summary ................................................................................................................ 1 Key Findings .............................................................................................................................. 1 Trends in the Availability of Bank Branches .................................................................. 3 County-Level Analysis of Changes in Bank Branch Availability ...................................................... 3 Use of Bank Branches by Consumers and Small Businesses .................................... 7 Use of Bank Branches by Consumers .......................................................................................... 7 Use of Bank Branches by Small Businesses ................................................................................. 9 Takeaways from Listening Sessions .................................................................................. 11 Listening Session Communities: Demographic and Economic Indicators ..................................... 11 Listening Session Key Takeaways .............................................................................................. 12 Conclusion ............................................................................................................................... 19 Appendix A: Banking Data Analysis Methodology .................................................. 21 Appendix B: List of Listening Sessions .......................................................................... 23 1 Executive Summary The mission of the Federal Reserve System is to fos- ers and small businesses utilize bank branches. ter the stability, integrity, and efficiency of the Lastly, it highlights key takeaways from listening ses- nation’s monetary, financial, and payment systems sions that sought to identify how individuals and and to promote optimal economic performance. businesses within affected communities are impacted Because consumers and communities are critical par- when their local bank branch closes.3 ticipants in the economy, their economic and finan- cial well-being is essential to our nation’s overall eco- nomic vitality and soundness. With this in mind, the Key Findings Federal Reserve System’s community development function engages in activities that promote the eco- Bank Branch Trends nomic and financial health of consumers and com- • While nearly half of counties either gained bank munities across America, with a particular focus on branches or retained the same number of bank the well-being of low- and moderate-income and branches between 2012 and 2017, the majority lost other historically underserved households and com- bank branches over this period. Indeed, some rural munities, including rural areas. counties have experienced considerable recent declines in bank branches. In recent years, consumer and community groups have raised concerns about the effects that bank • These deeply affected rural counties tend to be branch closures and financial industry consolidation poorer, composed of residents with fewer years of are having on access to financial services in low- education, and have a greater proportion of Afri- income and other underserved communities.1 Com- can American residents relative to other rural munity groups have also raised concerns about the counties. potential for industry consolidation to blunt the • Between 2012 and 2017, there was also a substan- effectiveness of the Community Reinvestment Act tial increase in the number of communities that (CRA), which encourages banks to help meet the contained no bank headquarters, the majority of credit needs of the communities they serve. which were rural. This report contributes to the public’s understanding Use of Bank Branches by Consumers and of trends in the banking industry in three ways. Small Businesses First, it analyzes which communities across the coun- try have been deeply affected by bank branch clo- • A growing share of consumers with bank accounts sures.2 Second, it summarizes data and research on are adopting online and mobile banking, primarily how and to what extent different groups of consum- for more simple functions such as checking bal- ances. However, branches continue to be an impor- 1 This report uses the term financial services to refer to the full tant banking channel for consumers, especially for complement of financial products and services typically used by deposit and withdrawal transactions and for consumer and small business clients. For consumers, these include checking and savings accounts, credit cards, mortgages, resolving problems. consumer loans, auto loans, and cash deposits and withdrawals, among others. For small businesses, these include commercial 3 The authors compiled the listening session takeaways contained real estate loans, equipment loans, auto loans, merchant card in the report from the notes of the Federal Reserve Board and processing, cash management (Treasury) services, commercial Federal Reserve Bank staff who conducted the listening ses- credit cards, direct payroll deposit services, and working capital sions. Consequently, the takeaways are reflective of the percep- and other lines of credit, among others. tions of the individuals who participated in the listening ses- 2 This report defines “deeply affected” as a county that had 10 or sions, and do not necessarily reflect the views of the Board of fewer branches in 2012 and lost at least 50 percent of those Governors of the Federal Reserve System or any individual branches by 2017. Federal Reserve Bank. 2 Perspectives from Main Street: Bank Branch Access in Rural Communities • The shift to digital channels is occurring more Takeaways from Listening Sessions gradually for certain consumer groups. This is par- • ticularly true for those who are older, have lower Consumers and small business owners in commu- incomes or fewer years of formal education, or nities experiencing considerable bank branch clo- who live in rural areas. sures report that they are finding local or techno- logical substitutes for many, but not all, of the ser- • The majority of small businesses prefer to utilize vices they used to access at the bank branch that local banks to access financial services and may closed. garner tangible benefits from doing so in terms of credit availability and the terms of that credit. • But, banking clients in affected communities gen- erally report increased costs and reduced conve- • While small businesses have increasingly chosen to nience in accessing financial services. These chal- access credit through online lenders, they generally lenges appear to be exacerbated for certain groups, report lower levels of satisfaction with online lend- such as those with lower incomes or less reliable ers than is reported by those who used banks, and access to transportation, older individuals, and they express concerns about transparency regard- small business owners. ing product cost and terms. • The effect