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Branch Closings Typically Create Modest Increase in Distance to Banks


Tuesday, April 20, 2021
A sign in the window of a bank announces that the branch has closed.

Bank branch closures in recent years have sparked concerns about limited access to banking services for certain populations, according to a Regional Economist article. But closures have been concentrated in areas with more than one branch, meaning increases to median distances to the nearest branches aren’t large, St. Louis Fed Economist Drew Dahl, Policy Analyst Michelle Franke and Vice President James Fuchs wrote.

When branch banks shutter, people sometimes must travel farther to conduct their banking business. In some cases, customers must drive significant distances or forgo financial transactions. At times, businesses have to close during the workday to make deposits or withdraw cash from distant branches. Hardships are particularly significant for the elderly, those lacking easy transportation and people with mobility issues. But those kinds of inconveniences from branch closings are not necessarily widespread, Dahl, Franke and Fuchs wrote.

“Our findings indicate that closures have been concentrated in areas with branch duplication, rather than in places that depend on a single branch,” the authors wrote. “In most cases, this creates relatively modest increases in the distances individuals must travel to access equivalent banking services.”

Nearly 6,000 Branches Closed over Five Years

The authors calculate that 5,931 full-service, physical branches closed between July 2013 and June 2018.These do not include main offices, headquarters, retail branches in supermarkets or department stores, limited service branches, drive-thrus, branches operated by other depository intermediaries such as thrift institutions or credit unions, and offices operated by other nondepository institutions. The details are in the table below.

Characteristics of Closed Bank Branches
  Closed Branches Existing Branches Difference
Rural
Percentage minorities in county 14.9% 13% 1.9 percentage points
Mean household income in county $40,775 $42,886 -$2,111
Number of branches 463 32,113 N/A
Urban
Percentage minorities in county 29.5% 29.3% 0.2 percentage points
Mean household income in county $59,102 $59,815 -$713
Number of branches 5,468 283,671 N/A
SOURCES: Demographic information is from the U.S. Census Bureau. Information for bank branches is a combination of Competitive Analysis and Structure Source Instrument for Depository Institutions (CASSIDI) and Federal Deposit Insurance Corp. (FDIC) Summary of Deposit (SOD) data.
NOTES: Values are means. The sample consists of full-service, brick-and-mortar branches that are not main offices (headquarters). Credit unions are excluded. Observations pooled for years 2013-18.

The authors found that more branches closed in urban areas (5,468) than in rural areas (463).A branch is defined as urban if it is in a metropolitan statistical area (MSA) with a core population of more than 50,000. A bank is considered rural if it’s outside an MSA and outside a “micropolitan” area with a cluster of 10,000 to 50,000 people. Banks in micropolitan areas are excluded. Differences were less marked but still clear when expressed on a relative basis; closures represented 1.9% of branches in urban areas and 1.4% in rural areas.

Only slight differences were apparent in the income and minority makeup of urban counties where closings occurred compared with those that had none. Yet rural counties with closed branches had higher minority percentages (15% versus 13% for open branches) and lower median household incomes ($41,000 versus $43,000 for open branches).

Rural Patrons Had to Travel Farther after Branch Closings

After branch closings, patrons in rural areas had to travel farther to reach a bank. In rural areas, the median distance customers had to travel to the nearest full-service branch or main office of any bank was 0.64 mile, while in urban areas the distance was 0.18 mile. The authors noted that this pattern is consistent with a distribution of branch closures clustered at relatively short distances.

“Even in rural areas, an average of fewer than 40 rural closures per year extended distances to the nearest branch by more than two-thirds of a mile. This underscores a trend that some analysts expect will persist,” they wrote.

Distance (in Miles) from Closed Branches to Nearest Open Branch
  Percentile
  5% 25% 50% (Median) 75% 95%
Rural 0.02 0.11 0.64 5.56 15.5
Urban 0.01 0.07 0.18 0.57 3.01
SOURCE: Authors’ calculations.
NOTES: Distance is measured in miles. Closed branches are full-service, brick-and-mortar facilities that are not main offices (headquarters). Nearest branches include main offices. Credit unions, thrifts and other nondepository institutions are excluded.

In another study that focused on closures in “deeply affected” counties where a branch was often more than 10 miles away, customers without consistent access to transportation had to travel 20 minutes each way in these “banking deserts.”

“However, our results show such hardships imposed by extreme distances are atypical,” the authors wrote.

Even in rural areas, only 5% of closures place customers more than about 15 miles from a branch. Another study found similar limited impact, with fewer than 0.07% of people nationwide living in banking deserts characterized by low incomes and large minority populations, they noted.

Big Distance Increases Aren’t Widespread

Dahl, Franke and Fuchs suggested that their findings can help inform discussions about bank mergers and acquisitions, as well as policy changes that can strengthen access to banking services in affected communities.

Recent closures raised median distances to the nearest branches by less than two-thirds of a mile in rural areas and less than a quarter-mile in urban areas, the authors noted.

“Inconveniences associated with extreme increases in distance may be impactful but are not necessarily widespread,” they concluded.

Notes and References

  1. These do not include main offices, headquarters, retail branches in supermarkets or department stores, limited service branches, drive-thrus, branches operated by other depository intermediaries such as thrift institutions or credit unions, and offices operated by other nondepository institutions.
  2. A branch is defined as urban if it is in a metropolitan statistical area (MSA) with a core population of more than 50,000. A bank is considered rural if it’s outside an MSA and outside a “micropolitan” area with a cluster of 10,000 to 50,000 people. Banks in micropolitan areas are excluded.

Additional Resources

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