High and Dry: Banking Deserts Increased in the Fifth District During the Pandemic

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The number of U.S. bank branches has been shrinking for years, but the COVID-19 pandemic accelerated the rate of closures. After the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 allowed banks to open branches across state lines, branch networks spread steadily across the country. That expansion continued until the Great Recession, after which banks moved from growing their physical footprints to increasing their automated services, like ATMs and online banking.

As automated technologies became more available, banking preferences started to shift among the public. The FDIC Survey of Unbanked and Underbanked Households revealed that in 2013, online or mobile banking was the primary method of bank account access for about 39 percent of surveyed households. This climbed to 57 percent in 2019 and 66 percent in 2021. The shift in preferences, technological advancements, and bank strategy resulted in increased branch closures over this period.

As the trend of branch closures continues, communities are at risk of becoming "banking deserts," or places that have poor access to physical banking locations.¹ The FDIC's survey revealed that 15.4 percent of the 5.9 million unbanked households in 2021 cited inconvenient bank locations as one reason for not having a bank account. In-person banking is also more conducive to relationship-building, which can benefit customers seeking more complex banking services, like a loan. According to the FDIC, in 2021, in-person banking continued to be preferred by many customers who live in a rural area, are older, have a lower income, and/or have a lower level of education.

The Banking Deserts Dashboard

Fed Communities, in conjunction with the Philadelphia Federal Reserve, recently published a Banking Deserts Dashboard, which illustrates where bank branches across the country closed between 2019 and 2023. In its national report, the Philadelphia Fed revealed that between 2019 and 2023, the United States lost 5,413 bank branches (inclusive of commercial banks, savings loan associations, and credit unions). These closures resulted in the number of banking deserts increasing by over 6 percent.

Across the nation, the largest numbers of branch closures came from large banks closing branches in higher-income, predominantly White, suburban areas. But at the same time, lower-income, predominantly Black, older, lower broadband access areas lost branches at a disproportionate rate.

The Fifth District Saw Larger Growth in Banking Deserts Compared to the U.S.

The number of banking deserts in the United States grew by 217 census tracts from 2019 to 2023. Fifth District states saw an increase of 50 banking deserts, from 513 tracts to 563 tracts. The increase in the number of deserts meant that 170,000 more individuals were living in a banking desert in the Fifth District in 2023, compared to five years prior.

North Carolina and South Carolina had especially high occurrences of banking deserts. In the Fifth District, North Carolina had the highest count of banking deserts (262 tracts) by 2023, and South Carolina had 134 desert tracts. That means that about 10 percent of both state's census tracts were banking deserts in 2023.

The percent change in banking deserts in the Fifth District was nearly 10 percent, compared to about 6 percent nationally. But changes looked different across each state. Because the entirety of the District of Columbia is urban, banking deserts would occur if there were no bank branches within 2 miles of each census tract. However, due to both its size and bounty of bank branches, none of the District of Columbia's 200+ tracts were considered banking deserts from 2019 to 2023. Aside from the District of Columbia, Maryland's count of banking deserts was lowest in the Fifth District, but it had the highest growth in banking deserts (likely due to the low numbers). Meanwhile, West Virginia had no growth in banking deserts: It had 33 deserts in both 2019 and in 2023.

Characteristics of Fifth District Banking Deserts

Similar to the nation as a whole, the largest share of Fifth District banking deserts occurred in predominantly White, middle- to upper-income (MUI), and suburban tracts. (See Table 1 below.) From 2019 to 2023, the composition of Fifth District banking desert tracts remained largely the same. However, tracts with certain characteristics saw increases as a share of total Fifth District banking deserts.

For example, in 2019, around 8 percent of Fifth District banking deserts had a predominantly Black population. But by 2023, it increased to 9 percent. The share of rural, urban, and "high disabled population" banking desert tracts also increased by about 1 percent.² Notably, the share of banking deserts that were high disabled tracts is disproportionately large (37 percent), compared to the share of all Fifth District tracts that had a high disabled population (28 percent).

Table 1: Fifth District Banking Desert Tract Characteristics, 2019 and 2023

Share of 2019 Banking Desert Tracts with Given Characteristic	Share of 2023 Banking Desert Tracts with Given Characteristic	Share of All 2023 Census Tracts with Given Characteristic
Total population	1,916,103	2,089,698	32,534,119
Predominantly Black	8.2	9.2	14.4
Predominantly Hispanic	0.2	0.2	0.8
No Predominant Race	7.4	7.1	15.1
Predominantly White	84.2	83.7	69.5
LMI	27.3	27.6	29.4
MUI	72.7	72.4	70.6
Rural	4.9	5.9	16.7
Suburban	81.1	78.9	54.1
Urban	14	15.3	29.2
Low Broadband Access	47.2	47.2	29.9
High Older Population	33.9	33.8	27
High Disabled Population	36.8	37.5	28.3
Source: Fed Communities Banking Deserts Dashboard Note: Low broadband access, high older population, and higher disabled population are not mutually exclusive categories. Population and demographics are based on the Census Bureau's American Community Survey 2016-2020 estimates.

Conclusion

Physical bank locations have continued to close as mobile and online banking become more prevalent and banks change their operations. During the COVID-19 pandemic, middle- and upper-income suburban neighborhoods saw large numbers of branch closures and an increase in banking deserts. Although access to a physical bank branch may be a useful resource to everyone, people living in these places are more likely to prefer online banking, and also largely have access to the technological resources (like broadband and digital devices) to adapt to decreased physical banking access.

The smaller (but relatively large) increases in banking deserts for populations that are typically underserved by banks may be harder to absorb, due to banking preferences, lack of access to or adoption of technology, and lowered ability to travel farther to reach a bank branch.

As we continue to monitor trends in how people prefer to access banking services and the options they have available to them, you can see how banking deserts have changed in your state and neighborhood by using the interactive Banking Deserts Dashboard tool.

Views expressed are those of the author(s) and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.