Noara Razzak, economics Ph.D. student, researches the impact of bank closures

What happens to a community when its local bank closes? Noara Razzak, an economics Ph.D. student at the Wilbur O. and Ann Powers College of Business, is working to investigate the effects of these closures and what they mean for the future of community banking. Specifically, her research focuses on how the closure of Minority Depository Institutions (MDIs) affects the community's access to credit services.

MDIs are federally insured banks and credit unions that serve minority, low-income and rural communities. Because MDIs located in communities with a higher share of minorities and relatively limited access to other financial services, their closure would likely affect credit access for these minority communities.

Razzak's inspiration for her line of research stems from her personal experiences. "Growing up in a developing country with widespread poverty, I witnessed firsthand the challenges and hurdles faced by historically disadvantaged communities when accessing financial services. Therefore, I became keenly interested in studying the impacts of community banking on economic opportunities for minority populations, particularly in urban areas."

In Razzak's working paper, "Do Closing of Minority Depository Institutions Affect Credit in Their Communities," she looks at publicly available data, such as mortgage records and small business loan origination, and compares credit access in communities where MDI branches close.

One of her most interesting findings includes the role of online banking and other financial technologies (fintech) in mitigating some of the effects of bank branch closure in these racially diverse communities. Because online banking reaches a greater number of people since it is not limited by geography, that means even when any local bank closes, people in that area still have access to financial services like small business loans and mortgages.

Another surprising result of her research is that when a non-MDI branch closes, the number of small business loan originations actually increases.

"It's counterintuitive. Normally, when people think of a bank branch closing, they would assume something like loan originations would decrease as well. But what I found was the opposite of that. Recent Working papers in economics are also showing similar results the similar results. It's really fascinating."

Razzak's research has not gone unnoticed. This year, Razzark was distinguished as an Emerging Scholar at the Community Banking Research Conference (CBRC) hosted by the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board and the Federal Reserve Bank of St. Louis. Her working paper was also selected for the Philadelphia Fed Mentoring and Advancing Ph.D. (PFMAP) Program.

She is excited to continue her research into MDIs and the evolving role of physical branches in diverse urban communities. Some of her future papers include topics on the relationship between home appraisal values and MDIs and how redlining and other historical discriminatory practices might correlate with the presence of MDIs.

"I want my research to shine a light on the racial inequalities in financial access and, hopefully, inform policies that can help close these gaps," she explains. "Bank access is crucial in ensuring people have economic opportunities, and I hope my work contributes to creating a more equitable financial landscape."

Visit the Ph.D. in Economics program website to learn more.