Brick-and-mortar banks have been disappearing in the US for years, but banks have doubled the number of branch closures during the Covid-19 pandemic, new data from the National Community Reinvestment Coalition (NCRC) shows.
And Baltimore’s branch closure rate, the group says, is nearly the worst in the country, with the Baltimore metro area losing 14% of its bank branches between 2017 and 2021.
Only the Portland, Oregon metro area saw a higher rate of closures, with nearly 20% of bank branches closing over that five-year period.
Hartford, Connecticut tied Baltimore with a 14% loss.
Even with the industry’s general shift online, the report’s authors say commercial banks remain a vital lifeline for financial services for many.
“Small businesses still depend on personal banking services despite the proliferation of online alternatives,” they wrote in “The great consolidation of banks and the acceleration of branch closures across America‘ was published today.
“And the shrinking of branch networks threatens local economic activity, which is key to wealth creation in marginalized communities,” they noted.
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“In communities that have historically faced higher barriers to banking services and struggled to build wealth, the face-to-face relationship between local business owners and bankers in local branches can be critical to securing loans or renegotiating loan terms,” he said Jason Richardson, Senior Director of NCRC Research and one of the study authors.
Consolidation and Covid
Along with the shift to Internet-based transactions, mergers and acquisitions have closed most of the branches.
According to the report, two-thirds of banking institutions have disappeared since the early 1980s, with the decline narrowing from nearly 18,000 in 1984 to fewer than 5,000 in 2021.
Between 2017 and 2021, 9% of all U.S. stores were closed, representing a loss of approximately 7,500 physical locations.
The pandemic accelerated the trend dramatically, the authors noted.
Banks have closed more than 4,000 branches since March 2020. This means that the number of closures has doubled in the 10 years before the pandemic.
As for the impact of this trend, unsurprisingly minorities and the less affluent are hit hardest.
A third of the branches closed between 2017 and 2021 were in low- to middle-income and/or minority neighborhoods where access to branches is critical to addressing inequalities in access to financial services, the report said.
Without branches nearby, people are more likely to be ‘unbanked’ or ‘under the bank’.
And that means turning to alternative finance providers to step in to fill the gap – unregulated actors like payday lenders, car loan companies, or check cashing houses that charge exorbitant fees.