The number of British bank and building society branches have been declining in recent decades, and the decline has been accelerating in low income areas. Fionn Travers-Smith is a campaign manager at Move Your Money, a national campaign for a banking system that helps to build and support a just and sustainable society. He talks to FHEx about the decline in bank branches for low income communities and what this means for local financial inclusion. You can find the full report and further details here. Also, on 30th June there was a debate in the House of Commons on bank branch closures. We’ve summarised the debate here.
In the shires and countrysides of rural England, Scotland and Wales, a crisis in finance is quietly brewing. But unlike the financial crisis of 2008, this is an issue that you’re unlikely to be aware of, unless you’ve already been adversely affected.
Since 1989, Britain has lost a staggering 53% of all bank and building society branches, with closure rates accelerating dramatically in recent years. Swiss mega-bank UBS has predicted that Britain will lose a further 50% of its branches in the next ten years, and with banks uniformly promising to cut costs – particularly in the wake of post-Brexit share price plummets – the trend only looks set to continue.
These are stark figures, but the general response of policy makers, analysts and even members of the urban public has generally been one of apathy. After all, who uses bank branches anymore, right?
The answer might surprise you. According to the Social Market Foundation, at least 11% of the population (some 7 million people) still rely exclusively or almost exclusively on bank branches to access and manage their money. Given the UK’s woeful broadband coverage, where one in five have no access to broadband and 8.6 million people don’t use the internet at all, the number of people relying on branches is likely to be significantly higher.
Whilst it’s undeniably true that mobile and digital banking has fundamentally changed the way many of us interact with our banks, not everyone has benefitted from this so-called “digitalisation” of financial services. In fact, all the available evidence suggests that it is primarily the poor and the elderly who are the most likely to still rely on branches, and to have been left behind by the drive to online finance.
Take branch closure locations, for example. Separate research pieces from the BBC, Nottingham University and Deloitte have each shown that bank branch closures are most likely to occur in areas that have higher than average concentrations of elderly and the poor, as well as in areas that already have lower rates of disposable income, lower house prices, and higher rates of business failure.
In other words, bank branch closures are happening most frequently in the areas where branches are most relied upon, and where closures are most likely to have the biggest negative impact on local residents.
Yet despite this, the majority of research on the topic has focused on why banks are justified in closing bank branches, and where they should continue to close them. Banks are private, profit making companies, the argument goes, and so they are justified in keeping costs down and profits as high as possible. Indeed, it’s arguable that they are legally obliged to do this, no matter the consequences on the people or communities that they leave behind. In the mean time, communities and their constituents suffer.
Banks play a crucial and fundamental role in modern society, including facilitating access to the financial system, and providing credit to small businesses so that they can create jobs and prosperity in local areas. But as we have seen with the financial crisis, the incentives that are structurally embedded within banks to maximise profits are not always in alignment with the roles and functions that society needs banks to provide, and upon which we rely.
That’s why Move Your Money released our new research report exploring the crisis of bank branch closures and their impact on local economies, entitled Abandoned Communities. For the first time, we demonstrate the impact that bank branch closures are having on people and local communities, and put the voices of people affected by closures back to the centre of the debate.
And the results are explosive. Our research shows that postcodes that lose a bank branch on average suffer a 63% drop in lending growth, which is essential for vibrant and prosperous local communities. Businesses subsequently fail, people lose their jobs, and young people leave these declining communities due to lack of opportunities. “All of our concerns have come true,” one campaigner in Nottinghamshire told us.
The situation is even more stark for areas that lose their last bank in town. These areas lose 104% of lending growth, meaning that the major banks are actually withdrawing money from those areas, rather than lending to them and helping them to grow. On average, areas that lose their last bank in town suffer a drop in lending of around £1.6 million – a significant and damaging loss given that these are already some of the poorest areas in the UK already.
As well as the impact on the local economy, individuals suffer too. The elderly and disabled are the most likely to be affected because of mobility issues and the cost of getting to the next nearest branch, which are often many miles away. But there is also evidence that predatory and usurious lenders fill the gaps when mainstream financial institutions leave town. This worsens and deepens indebtedness and personal financial problems.
The solution to all of this is quite simple. Existing banks should be forced to respond to the needs of local communities when making closure decision, and to make those decisions based on the public interest in those areas – particularly where it’s a bank that was saved by the public in the first place. After all, we own RBS, so it should work for us.
Instead, the current system explicitly mandates banks to ignore local public interest, and to make closure decisions based purely on commercial grounds, no matter the impact on the local level. Increased indebtedness, poverty and economic decline are the consequences.
But as well as forcing the existing banks to do a better job, policy makers must work much harder to promote and build other types of banks – stakeholder banks – like co-ops, mutual’s, credit unions and community development finance institutions, which are still profit making but that also work for the benefit of society. In every other major economy these banks are very successful and have much bigger market shares, but in Britain they were washed away in the wave of demutualisation that swept the country in the late 80’s and early 90’s.
With bank branch closures are only set to continue, policy makers are faced with a clear choice: either continue to place faith in the failed system of private competition in banking services, or take a more proactive and interventionist approach to banking and financial service provision. The impact on financial exclusion, poverty and local economic fortunes can be dire if policy makers make the wrong choice, as the plight of abandoned communities up and down the country has already shown.