The contraction in bank branch footprints, once a popular issue that has lost some of its fervor in recent years, is suddenly a topic again.
- The Federal Reserve Bank of New York recently released a study on bank deserts. Among the conclusions was the observation that bank branch closings were equally likely across all neighborhood income strata.
- The OCC recently asked for comments on how technology might alter assumptions about the need for bank branches, specifically as to how those concerns relate to CRA examinations.
- The Wall Street Journal recently profiled the trend of banks moving away from full-service branches and to device-friendly cafe kiosks with a narrow focus on just a few products.
- The Washington Post discussed how some banks are starting to outline their plans to shrink their branch networks.
The common frame in current mass media is to view the question through the lens of a particular branch closure and the response to that event within the surrounding neighborhoods. That may be because in absolute numbers, the shrinkage is actually not that great. True, Bank of America has openly discussed its intentions to shutter hundreds of branches. But overall, there are almost as many bank branches as there were five years ago.
To the extent that the last-bank-in-town story has power, it also misses an important point. More often than not, communities are not losing their last branch. But many are seeing their choices diminish. More than a few counties in North Carolina only have two or three branches today. But they might have had five or seven just a few years ago. The banks are smart. The bank that closes the last branch gets the unfavorable press. The one that closed two in the last five years, albeit not the last one, escapes unscathed.
That perception is exemplified by trends in many rural North Carolina communities. Almost all of the net losses in branches have been realized in the areas located beyond our state's metropolitan center. Rural communities have 274 fewer full-service brick-and-mortar retail branches than they did in June 2011. The urban areas, on the other hand, have experienced a net gain of 51.
It is a trend that holds true across every urban metro. Every one of our state's 17 MSAs has either the same number or more of retail full service brick-and-mortar bank branches than in 2011. Rural areas have 31.5 percent fewer. It isn't for trying, either. In rural areas, the average deposit sum on a per branch basis increased 24 percent. That was 4.5 percentage points more than in the rest of the state.
Some of the counties with the greatest attrition, expressed in absolute numbers but ranked on a percentage basis:
- Northampton - from 5 to 2.
- Bertie - from 7 to 3.
- Anson - from 7 to 4.
- Transylvania - from 12 to 8.
- Gates, Jones, Warren - 3 to 2.
Camden County is down to just one branch and eight other counties only have two left. While the Fed study intoned that this was not a problem that touched poor communities more than it does the ones that are well-off, that finding is not evidenced here. All of these areas are very poor, with the exception of Transylvania, where well-heeled retirees rub shoulders with their housekeepers and wait staff.
One disruptor was the acquisition of RBC Centura by PNC Bank. RBC Centura was the latest iteration of a long-time eastern North Carolina banking franchise with roots in Rocky Mount. PNC bought RBC Centura in the fall of 2011 - shortly after the starting point of this analysis. PNC has closed branches in Anson, Northampton, Bertie, and Gates counties.
The departure of a bank branch can undermine local economic development, particularly the activities of local businesses. Most mortgage lending - especially in an era where the GSEs effectively create the standards for loan approval - is somewhat straightforward. A bank hardly needs to be located near a home in order to make an underwriting decision. But commercial lending is rarely homogeneous across an entire portfolio. Due diligence on cash flows, environmental reviews, zoning approvals - all require a lot of touch. When a deal becomes endangered by an unforeseen problem, it takes courage to go forward. Knowing an area makes a big difference.
Perhaps the return reflects the larger trend towards re-imagining the Community Reinvestment Act. In the wake of the housing crisis, the appetite among policymakers for the CRA waned. The CRA did not cause the Great Recession, but the Great Recession undermined the CRA.