The pictures tell the story. In each, a bank has closed a branch in a vulnerable neighborhood. But in one, the bank completely abandoned a fragile community; in the other, the bank helped stabilize it. Same situation, two remarkably different outcomes.
Bank branch closures are a global trend, from Australia to Europe to Asia, which sooner or later may occur in your neighborhood. The legacy that the bank leaves depends on how the community acts.
Branch locations – despite the rise in electronic banking – are still the primary means of providing financial services, particularly to low-income households. In rural areas, branch closings result in reduced local spending, a decline in financial investment and a loss of community confidence. In addition to providing credit products and services, bank branches often act as anchor businesses in commercial and downtown areas. When a branch closes, it often leaves behind a vacant building that scars the community landscape.
The Community Reinvestment Association of North Carolina (CRA-NC) examined bank branch closings and openings from 1996 to 2000 and found that poor, rural North Carolina counties had a significantly higher rate of decline of branches per resident. Although the number of bank branches statewide grew by 4.5 percent between 1996 and 2000, the poorest 36 counties had an aggregate net loss of bank branches, despite population gains. Similar studies in Los Angeles found that the number of branches decreased in the low-income neighborhoods of South Central, despite population increases; for the rest of Los Angeles County, the number of branch openings outstripped population growth.
With the merger of First Union Bank and Wachovia Bank in 2001, more than 200 branches in Florida, Georgia, South Carolina, North Carolina and Virginia will close. North Carolina will be hit particularly hard, with an estimated 75 branch closures. These branch closures will be in addition to the 72 branches closed by the two banks in North Carolina since 1997.
When banks move out, alternative financial services charging much higher fees move in. Prime rate credit products from traditional bank branches become more difficult to get, and subprime and “fringe” lenders fill the void left by the banks. (See Shelterforce #124.) For example, in Los Angeles, studies found that check-cashing outlets were clustered in low-income areas and outnumbered bank branches in the same area of South Central that banks had abandoned. In North Carolina, our study showed that the number of check-cashing establishments grew faster in poorer, rural counties that had lost bank branches. The decline of banks and the rise of alternative services in low-income and rural areas mean that the communities most in need of economic development have less access to capital and pay more for basic financial services.
However, there are ways for a community organization to hold a bank accountable and pressure it to take responsible corporate action. But that action won’t happen unless local communities ask for it – and ask persistently and effectively. Communities should take their requests directly to the bank president and chair, because these are the only people who have the authority to say yes. Everyone else is only authorized to say no.
But first the organization should decide what outcome would best serve the community’s needs.
What Spells Victory?
Here are four positive outcomes in vulnerable communities:
1) Stop the closure through regulatory and public protest.
2) Work with the bank to develop a plan for assuring financial services are not diminished, but improved, through the branch network, an alternative service delivery system or the building of new branches.
3) Persuade the bank to donate the building to nonprofit community development agencies or sell the building with concessions to nonprofit agencies.
4) Assure proactive efforts to replace the bank business with a new business so the facility does not become a vacant building.
People depend on the branches for deposit accounts and loans, so it is necessary to determine the current level of services and ask the bank what will be done to improve services once the branch closes. Get specific. What is the staffing level? Where are loan officers located? How will marketing be done? What about access for people who use the bus system? This assessment should be done with the lender who is closing a branch and with the affected community – consumers, businesses and leaders.
If the branch closing will leave a gap in financial services, discuss alternatives with the bank. This is an opportunity for the bank to commit to new lending goals and improved financial services for the affected area. This may come from the placement of an ATM, increased outreach services in partnership with community agencies or the bank’s financial support of a community development financial institution to serve the area.
The Lower East Side People’s Federal Credit Union, a federally chartered nonprofit community development credit union for low- and moderate-income people on New York City’s Lower East Side, was the result of intense grass-roots community organizing against the 1984 closing of Manufacturers Hanover Trust. The credit union received an initial capital deposit from the departing bank in 1986 and opened its doors soon thereafter.
In addition to depriving a community of services, a departing bank leaves behind a building that may become a marginal business or be left vacant, hurting the local economy and diminishing community confidence. The dilapidated former Wachovia in Durham, NC, is an example of visual blight. In Washington, DC, a shuttered First Union branch was bought by a payday lender providing abusive, high-cost loans. Banks are particularly sensitive about their public image. Leaving a payday lender or dilapidated building as a legacy is not in their corporate self-interest or the community’s best interest.
The community can propose solutions to the bank. One solution would be for the bank to donate the branch building to a nonprofit or community development financial institution. First Union donated a branch in Union County, NC, to a community development corporation, creating a positive and lasting legacy in the community, unlike its counterpart in Washington, DC.
The lender and community advocates may disagree on the harm done to the community and the lender’s responsibility to mitigate the damage. Lenders respect community leaders who use their good judgment about what is fair and search for win-win solutions.
Persuasion and Protest
Generally, reaching an agreement with a bank on branch closures requires a combination of both goodwill and protest.
When a bank closes a branch in a low- or moderate-income area, the Community Reinvestment Act (CRA) allows organizations to comment to the bank’s federal regulator on the effect on the community. The regulator may intervene, or the community may be able to work out a CRA agreement with the bank.
Individuals and groups can submit written comments to the regulatory agency, discussing the adverse effect of a closing on a low- or moderate-income area and requesting a meeting with regulators. If the federal agency concludes that the request is not frivolous, it will meet with community leaders and other organizations to explore the feasibility of getting alternative facilities and services for the affected area. Although the banking agency cannot intervene to prevent the closing if the bank has properly notified regulators and the public, a formal comment can lead to a meeting, which provides a forum to express concerns and discuss alternatives for the community.
The Woodstock Institute and the Chicago CRA Coalition have successfully used CRA agreements to prevent branch closures during bank mergers. They negotiated that no branches in low- and moderate-income communities would be closed for a certain time period after the merger of Old Kent and Pinnacle Bank. In the Coalition’s 1998 CRA agreement with First Chicago and Banc One, the banks agreed to open two new full-service supermarket branches in low- and moderate-income areas and two additional full service branches in low- and moderate-income areas. The banks followed through on their commitment and opened the branches.
Without vocal community leadership, the bank will close branches as quickly and quietly as possible. Therefore, public protests, including letter-writing campaigns, street theater, picketing, demonstrations and closing large accounts can be effective.
The different types of public protests require varying degrees of community mobilization. In Ireland, one resident of a community losing a bank branch went on a hunger strike until the bank agreed to place an ATM in the community. In Ottawa, eighty-year-old Betty Hyde launched a letter-writing campaign directed at the president and CEO of the Royal Bank of Canada, protesting a branch closure in her neighborhood. Despite hearing “no” from the top to the bottom of the corporation on several occasions, she continued her letter-writing campaign, and the bank agreed to hold a town hall meeting. The branch ultimately remained open.
In other instances, local governments have taken the lead in protest. To protest Wachovia’s closing of its Northeast Durham branch, the city of Durham, the County of Durham and Durham Public Schools all ended their banking relationships with Wachovia.
Although protests do not need media coverage to be effective, media exposure makes it possible to reach a broader audience. Community groups can contact the local newspaper about doing a story on the bank closing and the potential harm to the community. In addition, they can write op-ed pieces or letters to the editor in local newspapers to increase public awareness and convey their position.
Even if you are unable to prevent a branch closure, your action can help secure a result that meets community needs and benefits the bank as well.
In 1990, branches were closing in a low-income, minority neighborhood in Cleveland, OH. Letter-writing campaigns and picket lines in front of banks were well covered by the media, creating an environment in which the Faith Community Credit Union secured a generous commitment from Society Bank, including the donation of a bank branch, furniture and an ATM. The bank’s generosity helped with its public relations issues, earned it ongoing CRA regulatory credit and was also profitable. The donated ATM, leased back to the bank for operations, generates three times the revenue it did prior to the credit union’s management.
A win-win situation only comes when communities take responsibility for advocating for themselves and corporations take advantage of a good opportunity to do the right thing for the community.