Understanding and Addressing Banking Deserts

Banking deserts are areas where people lack access to basic financial services, making it difficult for them to manage their money, save, and plan for the future.

In the United States, for example, it's estimated that over 25% of the population lives in a banking desert.

These areas often lack branches and ATMs, making it hard for people to access their money or deposit checks.

Research has shown that people living in banking deserts are more likely to rely on alternative financial services, which can be expensive and predatory.

This lack of access to traditional banking services can have serious consequences, including limited economic opportunities and increased financial stress.

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A banking desert is a community with limited access to physical bank branches. This can make it difficult for residents to manage their finances, access credit, and achieve financial stability.

The Banking Deserts Dashboard is a valuable tool that helps identify communities with limited access to physical bank branches. It provides census tract-level data on physical bank branch availability within all 50 states from 2019–2024.

Identifying communities with limited access to physical bank branches is crucial for informing solutions that better serve the financial and banking needs of their residents.

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A banking desert is created when a community has limited access to banking services, making it difficult for residents to manage their finances. This can happen due to the closure of underperforming branches.

The 2008 financial crisis led to the closure of thousands of bank branches across the US, resulting in the creation of 86 banking deserts in rural areas.

So you're wondering what causes gaps in banking services? A key factor is the closure of underperforming branches, which can leave communities without access to basic banking services.

The 2008 financial crisis led to the closure of thousands of bank branches across the U.S., resulting in 86 banking deserts in rural areas.

Another reason is the shift toward digital banking, which can make physical branches seem less necessary. This has led to a decrease in the number of branches in some areas.

Population loss can also contribute to gaps in banking services, as fewer people means less demand for services and potentially fewer branches.

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Characteristics of District 5 are quite interesting. The largest share of Fifth District banking deserts occurred in predominantly White, middle- to upper-income (MUI), and suburban tracts.

These tracts made up a significant portion of the total Fifth District banking deserts, with 84.2% being predominantly White in 2019, and 83.7% in 2023. This is a notable characteristic of the Fifth District.

The share of rural and urban tracts with banking deserts also increased over time. In 2019, 4.9% of banking deserts were rural, while in 2023 it was 5.9%. Urban tracts with banking deserts increased from 14% to 15.3% during the same period.

Here's a breakdown of the characteristics of Fifth District banking deserts in 2019 and 2023:

The share of tracts with high disabled populations was disproportionately large, making up 37.5% of banking deserts in 2023, compared to 28.3% of all tracts.

Living in a banking desert can be tough, especially when it comes to accessing basic banking services. Someone might need to drive an hour or more to reach their nearest bank branch.

A lack of banking access can make it more difficult to develop good financial habits. This can be a challenge for people who aren't familiar with the banking system.

Proximity is a big issue in banking deserts. If someone needs to deposit or withdraw money, they might have to use online-based lending or E-wallets, which can require some digital literacy.

Lack of exposure to the banking system can result in lower rates of financial literacy. This can make it harder to understand basic financial concepts, like budgeting and saving.

Banking deserts are often found in rural areas, and the Southwest is no exception.

A significant concentration of banking deserts can be found in southeastern California.

These areas lack access to basic banking services, making everyday financial transactions a challenge.

Arizona and Nevada also have large areas with limited banking options.

Rural communities in these states often have to travel long distances to access basic banking services.

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An estimated 5% of the U.S. population, or 7.1 million households, is unbanked, meaning they don't have a bank account. This is a significant number of people who are missing out on the benefits of banking.

Research suggests that physical proximity to bank branches is not what drives some people to remain unbanked. Instead, people may opt to go without bank accounts for various reasons.

Some of the reasons people may choose to avoid bank accounts include perceiving banking as being too expensive, believing they're unable to open a traditional bank account because of a past banking mistake, being distrustful of the banking system or government oversight, speaking a primary language other than English and finding it difficult to overcome language barriers, and being undocumented and not believing they can open a bank account in the U.S.

Here are some of the reasons people may choose to avoid bank accounts:

About 5% of the U.S. population, or 7.1 million households, is unbanked, meaning they don't have a bank account.

This number is significant, but it's not solely due to a lack of physical bank branches. Research suggests that people may opt to go without bank accounts for various reasons.

Some people perceive banking as being too expensive, which can be a major deterrent. Others may believe they're unable to open a traditional bank account due to a past banking mistake that resulted in a negative ChexSystems report.

Language barriers can also be a significant obstacle, with those who speak a primary language other than English finding it difficult to access banking services.

Undocumented individuals may also choose to avoid bank accounts, fearing they won't be able to open one in the U.S.

These reasons highlight the complexity of the issue, and why simply increasing the number of bank branches won't necessarily solve the problem.

Here are some of the main reasons why people may choose to avoid bank accounts:

About 12 million people in the United States live without a traditional bank account, according to the Federal Deposit Insurance Corporation (FDIC). This is a significant number, considering the country's population is over 330 million.

These individuals often rely on alternative financial services, such as check cashing stores and payday lenders, which can be expensive and predatory. Many people in this situation use these services because they don't have a stable income or a good credit history.

The FDIC estimates that 8.4% of the U.S. population is unbanked, with the majority being low-income households and minority communities. This lack of access to traditional banking can lead to financial exclusion and limited economic opportunities.

Some people may choose not to have a bank account due to concerns about fees or overdrafts, but for many, it's a necessity due to their financial situation.

Living in a banking desert can have serious consequences for individuals and communities. It's much harder for citizens to build wealth, credit, and savings when alternative services are expensive and a physical bank is nowhere to be found.

Children growing up in banking deserts are less likely to learn about finances from their parents and other adults, which can lead to financial illiteracy as they get older. This can have long-term effects on their financial stability and decision-making.

A 2020 study found that Native American reservations with banking deserts had very poor credit scores due to financial illiteracy and a lack of trust in banking.

Living in a banking desert can have a profound impact on individuals and communities. It's much harder for citizens to build wealth, credit, and savings with only expensive alternative services and without a physical bank nearby.

Children who grow up in banking deserts are less likely to be exposed to parents and other adults using local banks for finances, increasing their chances of financial illiteracy as they grow older.

A 2020 study found that people living in Native American reservations had very poor credit scores due to financial illiteracy and a lack of trust in banking. This lack of access to traditional banking services can have long-term consequences for individuals and communities.

Living in a banking desert can be a real challenge, but there's hope on the horizon. Digital banking is a solution that's making it easier for people to carry out basic financial tasks.

Digital banks are popping up online, helping to fill the gap for those who don't have a bank branch nearby. Online banks are also more fee-friendly, which is a huge bonus for people who are tired of paying high fees.

Online bank accounts are relatively easy to open, which can help ease some of the impacts of living in a banking desert.

Banking deserts can be a major obstacle for low-income communities, but there are solutions. Many communities have come together to create their own financial cooperatives, which are member-owned and controlled.

These cooperatives often offer more favorable interest rates and lower fees than traditional banks. They also provide a sense of community and local ownership, which can be a powerful draw for people who feel disconnected from the financial system.

In some cases, these cooperatives have even partnered with mainstream banks to offer more services and reach a wider audience.

The Banking Deserts Dashboard is a valuable tool for identifying banking deserts and potential banking deserts. It has census tract-level data on physical bank branch availability within all 50 states from 2019–2024.

You can use this dashboard to quickly identify communities with limited access to physical bank branches, which can help inform solutions for better serving the financial and banking needs of their residents.

The data on the dashboard is from 2019–2024, so you can see how banking deserts have changed over time in different areas of the country.

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The Fifth District Saw Larger Growth in Banking Deserts Compared to the U.S. In fact, the number of banking deserts in the Fifth District grew by 50, from 513 tracts to 563 tracts.

This growth is significant, as it means that 170,000 more individuals were living in a banking desert in the Fifth District in 2023, compared to 2019. The increase in the number of banking deserts was nearly 10 percent, compared to about 6 percent nationally.

North Carolina and South Carolina had especially high occurrences of banking deserts, with 262 tracts and 134 tracts respectively. That's about 10 percent of both states' census tracts that were banking deserts in 2023.

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.

If you're struggling to find a bank that will give you a checking account, don't worry, there's a solution. Many banks and credit unions offer second-chance checking accounts to people who may have been denied a traditional bank account elsewhere.

In some areas, it can be tough to find a bank at all. A banking desert is a census tract area or neighborhood that has no banking branches located in it or within 10 miles of its center.

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