Banking for the Other Half: The Factors That Explain Banking Desert Formation

Banks are one of the key drivers of economic development across communities. Banking deserts—defined by inadequate banking access—limit access to capital, inhibit wealth accumulation, and increase exposure to predatory lending. Banking desert formation could be profit-driven, with lower-income and l...

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Bibliographic Details
Published in:Economic development quarterly 2024-05, Vol.38 (2), p.71-81
Main Authors: Langford, W. Scott, Thomas, Harrison W., Feldman, Maryann P.
Format: Article
Language:English
Subjects:
Access
Accumulation
Banking
Branch banking
Censuses
Discrimination
Economic development
Financial institutions
Losses
Neighborhoods
Panel data
Underserved populations
Usury
Wealth
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Summary:Banks are one of the key drivers of economic development across communities. Banking deserts—defined by inadequate banking access—limit access to capital, inhibit wealth accumulation, and increase exposure to predatory lending. Banking desert formation could be profit-driven, with lower-income and less densely populated regions more likely to become banking deserts. Discrimination could also play a role here: banks may have less presence in areas with higher minority populations. The authors use a panel, census tract-level data set for the entire state of North Carolina to investigate how these forces impact banking access and banking desert formation. Panel methodologies are incorporated to investigate the extent to which profit and discrimination mechanisms each drive banking access and banking desert formation. Profit and discrimination mechanisms are shown to play roles, highlighting the need for policies that mitigate bank branch losses in underserved neighborhoods.
ISSN:0891-2424
1552-3543
DOI:10.1177/08912424231209305