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The shuttering of small businesses during the pandemic has had a lasting change on the flavor of local communities. Now, businesses that survived are at risk due to the closure of bank branches that fuel local economies. 

A new report by the National Community Reinvestment Coalition found that the monthly closure rate of bank branches doubled during the pandemic, resulting in the disappearance of over 4,000 branches from March 2020 to October 2021. Those closures hit low-to-moderate income and communities of color hard, the report’s authors found. 

How did we get here? 

Following the 2008 Great Recession, big banks merged and consolidated, then acquired small banks and their branches. A shift to internet and mobile-based financial transactions also contributed to the loss of commercial banking companies. As a result, communities saw a decline in small banks with local branches where residents knew their tellers or small business owners had a relationship with a loan officer.

The trend accelerated in 2020, as banks cut costs by eliminating brick-and-mortar locations.

During the pandemic, branch closures exceeded the peak of closures following the Great Recession. From October to December 2020, nearly 1,500 branches closed. 

A third of the 7,425 branches that closed from 2017 to 2021 were in neighborhoods with low-to-moderate-income households or where a majority of people of color lived, NCRC’s analysis of Federal Deposit Insurance Corp. data found. 

“Even a small number of closures can have an enormous impact on these communities that already have few branches to choose from,” the authors wrote. 

Portland, Oregon, saw the most bank branch closures of any metro area from 2017 to 2021, losing 20% of its bank branches. Hartford, Connecticut, and Baltimore ranked second, each losing 14% of their bank branches. 

The biggest banks closed the most branches, with Wells Fargo topping the list at 993 closures. Mergers drove the closures of most brick-and-mortar locations, the report’s authors found. Of the top 25 banks that closed branches since 2017, over half the companies had pursued or completed mergers. 

And the pace of closures doesn’t appear to be slowing. Grand Rapids, Michigan, which had the highest increase in the nation, saw 36 branches close during the pandemic, compared to 1 during the previous 20 months. Boston saw 55 pandemic closures, 14 times what it saw before the pandemic. 

“This suggests banks are simply rushing to close as many branches as they can, as quickly as they can, anywhere they can,” the authors wrote in the report.

When banks close branches, they reduce operating and staff costs. “In the sense of a merger, it saves a lot of money. If you’re a bank investor, you’re looking for reasons to support the merger,” Jason Richardson, NCRC’s senior director of research and one of the report’s authors, said in an interview. 

What’s the impact of branch closures? 

Opportunities to build credit and wealth are lost when branches close. And more people turn to fringe banking such as payday lending and predatory lending, experts warn.

In areas with bank closures, small business lending declines. Small businesses that have relationships with a branch may no longer have a contact at a bank when it closes.

“It may make it harder for them to access credit when they need it or expand their business,” Richardson said.

More people have turned to mobile and internet banking services in recent years, but those don’t fully replace physical bank branches, said Bruce Mitchell, NCRC’s senior research analyst and co-author of the report. During the pandemic, bank closures have disproportionately hit rural communities and low-income adults, many of whom lack access to mobile banking and have greater need for in-person locations. According to a 2021 Pew Research survey, 43% of adults with lower incomes lack broadband services.

A 2019 survey by the FDIC found that most “banked” respondents – those with at least one member of the household with a checking or savings account – had visited a bank in the past year. “Branches still matter,” Richardson said. “They’re important for small business lending, particularly where there’s little investment already.”

The report’s authors recommended that the 1977 Community Reinvestment Act, which requires banks to meet the credit needs of communities where they operate, be extended to non-bank financial services.

“With the increase in the number of banks that aren’t relying upon a geography defined by their bank branches,” Mitchell said, “the CRA desperately needs to be modernized to reflect this very changing financial market that we have in this country.” 

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Melissa Hellmann is an award-winning reporter who covers racial, gender and economic inequality. Prior...