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Rural areas hardest hit by branch closings, the Fed says

BB&T branch in Hickory, North Carolina, in August 2018. Photo: iStock

November 27, 2019

More than half of U.S. counties lost access to bank branches between 2012 and 2017, with rural consumers hardest hit by the decline, the Federal Reserve said in a report released Monday.

In the five-year period, nearly 800 rural counties lost 1,533 bank branches, representing 14% of their total branches. Meanwhile, urban counties lost only 9% of their branches, the report said. 

The findings highlight a trend. As banks have been consolidating in the years following the financial crisis, they've pulling out of rural areas and focusing more on prosperous urban communities. 

"These deeply affected rural counties tend to be poorer, composed of residents with fewer years of education, and have a greater proportion of African American residents relative to other rural counties," the Fed researchers said. 

In listening sessions, participants cited private ATMs as a key source of cash in the absence of a bank branch. However, most reported that such ATMs charged high fees. Some also described incurring out-of-network charges that, when combined with ATM fees, resulted in a cost burden.

In areas where branches disappeared, communities became creative in finding ways to access cash. Other roads to cash included requesting cash back on card transactions at local business or asking those businesses to cash checks, the report said. Some participants also described using check-cashing services and payday lenders to access cash and small-dollar loans for emergencies.  

Despite a new wave of mobile banking apps, branches continue to be important for certain services, including resolving problems, submitting loan applications, and for deposits and withdrawals, the report said. 

Adoption of digital banking services has been more gradual among consumers who are older, have lower incomes or fewer years of formal education, or who live in rural areas, the report said. 

Much of the information for the report was gathered at listening sessions hosted by regional Fed banks across the country between July 2018 and January 2019.