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What Is a Banking Desert?

What Is a Banking Desert?

There are 1,214 banking deserts in the U.S., most of which are located in sparsely populated areas, according to economists at the Federal Reserve Bank of New York. Some metropolitan statistical areas (MSAs), such as New York and Boston, have no banking deserts at all while the remainder are found in rural areas. Twenty-three percent of all banking deserts are located in MSAs.


Understanding Banking Desert

There are different reasons why a banking desert may exist, but the commonality is that access to branch banking is nonexistent. A banking desert is created when, for example:

  • Closure of branches that have been identified as underperformers
  • Bank failures
  • Population losses
  • Increased demand for digital banking services paired with decreased demand for branch banking

In total, 6,008 of 95,018 branches were closed between 2008 and 2016 as a result of the 2008 financial crisis, creating 86 new banking deserts in rural areas during that time. 25% of all closures occurring in majority-minority census tracts disproportionately affected minorities.


Disadvantages of Banking Deserts

Banking deserts can pose serious problems to the people who live in them for several reasons. One of the primary issues is proximity. If someone needs to deposit or withdraw money, or wants to apply for a loan, they may need to drive to their nearest bank branch, or use online financial products. The latter option might require some digital literacy.

A lack of banking access can result in lower rates of financial literacy and make it more difficult to develop good financial habits. The difficulty to understand basic financial concepts such as budgeting, saving, and building credit can turn into more difficultly.


Banking Deserts and the Unbanked

Approximately 5% of the United States population, or 7.1 million households, does not have a bank account, meaning they are unbanked. Another 13% of people in the United States are underbanked, which means they have a bank account but also use alternative financial services, such as payday loans and check-cashing services.

Research suggests that physical proximity to bank branches is not what drives some people to remain unbanked, in terms of whether banking deserts result in a higher percentage of unbanked and underbanked people in that area.



People my choose to not use bank accounts because they:

  • Believe they’re unable to open a traditional bank account because of a past banking mistake that resulted in a negative ChexSystems report
  • Perceive banking as being too expensive
  • Are distrustful of the banking system or government oversight of the system
  • Speak a primary language other than English and find it difficult to overcome language barriers when accessing banking
  • Are undocumented and do not believe they can open a bank account in the U.S.


People may choose to avoid bank accounts for many reasons, including living in a banking desert.


What Is a Banking Desert?

Banking Deserts are locations where no bank can be found with in a 10 mile radius. These Banking deserts are more commonly found in rural areas than in urban areas.


What Causes a Banking Desert?

More than 86 banking deserts were created in rural areas in 2008 as a result of the financial crisis, when thousands of bank branches across the U.S. were closed. A banking desert can also be created by the closure of underperforming branches, an increased move toward digital banking, and population loss.



Where Are Banking Deserts Located?

A concentration of banking deserts can be found in southeastern California, Arizona, and Nevada.


What Is Unbanked?

Approximately 5% of the U.S. population is unbanked, which means they don’t have a bank account. Approximately 13% of the population is underbanked, which means they have at least one bank account but also use alternative banking services, such as check-cashing services or payday lenders.



The Bottom Line

Although digital banks may be a solution, banking deserts can make it more difficult to carry out basic financial tasks, such as paying bills or depositing checks. The advantages of digital banking also include online banks typically having lower fees and higher interest rates on deposit accounts. Additionally, online bank accounts are relatively easy to open, which can be helpful for people living in “banking deserts.”



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