Little Rock Bank Deserts: The Incredible Shrinking Lending Tree

As banks across the nation relocate their branches from low and moderate income neighborhoods to affluent ones in major urban centers, minority communities are suffering the consequences. Nowhere is this more prevalent or more damaging than in Little Rock, Arkansas.

Four years ago, Bank of America (BofA) made an interesting business decision. It began closing all of its branches in the state of Indiana. In a sweeping move, it sold all of its old storefronts in financially transitioning “Rust Belt” towns. Then a few months later, the bank opened branches in entirely new locations around the state.

In an April 17, 2017 article in the Wall Street Journal, entitled “How Bank of America Ditched 1,597 Branches Across the U.S.”, the paper undertook extensive investigative reporting to understand why BofA made this fundamental strategic change, in Indiana and elsewhere. The Journal’s comprehensive reporting soon traced a definite pattern, a bank footprint that moved from rural communities and wound up in more affluent urban neighborhoods.

The paper was able to trace a demographic shift into what was a more desirable, or at least more desired, market. The median income, unemployment, education, and, crucially, the diversity index or racial profile of the new neighborhoods, showed a marked change from the previous locations. It appears that BofA was consciously targeting “whiter”, more affluent neighborhoods. Over the past ten years, the rate of bank penetration – or the ease of access to banking services – in Indiana has dropped by about 11%.

Bank Closure Trend

This trend is not limited to Bank of America, or to the state of Indiana, and not everybody is happy about it. Members of Congress are demanding banks comply with the provisions of the 1977 Community Reinvestment Act (CRA). The CRA requires banks to demonstrate that they are helping to improve access to mainstream financial services in areas that historically have been denied wealth-building opportunities. BofA’s presence would have grown, especially in LMI (low to moderate-income) communities, if its primary mandate had been compliance with CRA. However, one need not look far to see the reasons for banks behaving in this way, even if CRA is intended to counter precisely this kind of behavior.

According to a research memo undertaken by NCRC, entitled Bank Branch Closures from 2008 – 2016: Unequal Impact in America’s Heartland, nearly 4,900 brick-and-mortar branches were shuttered in that 8-year timeframe. This represented more than a 5% reduction.

Disparate Impact

The operations of most banks have undergone a change that requires a greater focus toward middle income and affluent neighborhoods. This strategy is not an entirely new industry phenomenon as we have seen it over and over again; at least since the financial crisis of 2006. Since then, approximately 5,000 bank locations across the country have closed. A closer examination of this pattern reveals the bank boardroom decision making process looks something like this: “Shut low performing, high cost urban and LMI branches and relocate to communities with a more affluent demographic profile.”

The strategy of closing some branches while opening others makes extraordinary business sense, particularly in a free-market, profit-oriented society. However, the banking industry is not caught up in the cut-throat competitive environment defined by other sectors. Banks benefit from government cushions, interventions, subsidies, and other benefits not enjoyed by other industries. Banks enjoy these unique privileges precisely to encourage broad access to quality financial services and to prevent LMI communities falling prey to predatory lenders.

Office closings have become a trend. The National Community Reinvestment Coalition (NCRC) describes this in their research memo titled “Bank Branch Closures from 2008 – 2016: Unequal Impact in America’s Heartland. “The report traced about 4,900 brick-and-mortar branches shuttered within the 8-year time-frame since the Great Recession. This represents a more than 5% reduction in offices nationwide.

What Does All of This Have to Do With Arkansas?

In 2018, the statistics of banks closure vis-à-vis new branches opening showed a net impact in favor of bank closures. A report released by S&P Global noted that 2018 was an unusually high year for closures. But while all areas suffered to a degree, the impact on states with a higher percentage of minorities was particularly severe.

When discussing bank closures and the increasing decentralization of credit, one state leads the pack – Arkansas. Increasing numbers of bank closures and restrictive laws have converged to ensure that access to non-predatory, brick-and-mortar financial services is almost non-existent in the state. The Federal Reserve notes that the City of Little Rock stands out among other metropolitan areas, have taken significant hits in bank losses over the past ten years. Although the population increased by 13%, there was a reduction of nearly 10% of available bank branches over the same period.

A picture is worth a thousand words. Beyond the immediate take away of the image, there is a need to dig into why it shows what it shows and what must be done. To that end, we compiled a list of the banks operating in Little Rock from the Federal Reserve, Federal Depository Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), and Arkansas State Bank Department. Comparing the geographic dispersion of these banks with the demographic information revealed the need for urgent action. A strategic imperative must focus on reducing the number of branch closures and improving access to mainstream ending services within LMI and minority communities.

Little Rock Opportunity Zones

In a coordinated effort aimed at reversing this trend and improving investment in these communities, federal, state, and local economic development agencies previously teamed up to establish Opportunity Zones. These zones are designed to promote development in census tracts deemed to be financially distressed as a result of historically low investments. Expectedly, the effect of this historically low level of investment now plays out in the form of high rates of poverty, blight, unemployment and crime. These areas typically record extremely low rates of homeownership and capital investment.  With Opportunity Zones, authorities can identify areas that require intensive investments.

The diagram above is a representation of the eight (8) Opportunity Zones in Pulaski County, which includes Little Rock. The actual size of the zone has been estimated as census tracts can range from a few blocks to miles, based on it being an urban, suburban, or rural area. Estimates reflect a one, two, and three-mile coverage area around the census tracts. Since Little Rock is a metropolitan area, this might be slightly larger than the actual size. This diagram provides a backdrop to estimate bank penetration in the specific area under study. It shows the locations of larger banks compared to the government-endorsed Opportunity Zones. (See the data below for the to raw evaluative data.)

Looking at the diagrammatic representation, the majority of banks in Little Rock fall outside of the Opportunity Zones. The immediate conclusion to be drawn, looking at the diagram, is that LMI communities captured within the Opportunity Zones are mostly not being served by banks. The few banks that fall within these areas are primarily situated along major thoroughfares. We can infer that these branch locations are designed to offer convenience for commuters.

Little Rock Bank/Median Income Layer

The next map examines bank spread based on median income.  The subsequent maps, along with this one, move from Opportunity Zones to evaluating the one, two, and three-mile radius and demographic profile of banks in Little Rock.  In other words, instead of determining the demographic profile of Opportunity Zones, we identify the bank target markets. Industry standards suggest that banks consider a two-mile circular radius as the definitive geographic market or type of consumers that they wish to attract.

The areas shaded in darker green represent communities with higher median incomes. Looking at the map, notice that most banks are either located in downtown Little Rock or within these darker shaded areas. The branches in lower-income communities are not as concentrated as in these two areas, and they are located along major thoroughfares as well.

Little Rock Bank/African-American Layer

African-Americans make up 15.4% of the demography of the state of Arkansas. Of that percentage, Little Rock is home to 42%. Thus African-American communities are widely spread throughout the city as the map below demonstrates. The immediate perception would be that the spread of banks within these communities is merely “adequate.” The story soon begins to change when you drill down into the operational dynamics of these banks. The banks in these communities offer depository services but do not provide credit in times of need.

Similar to the median income, the areas shaded in darker purple represent communities with higher concentrations of African-Americans. Again, most banks are either located in downtown Little Rock or within the lighter shaded areas.

The Need for a Deluge Banks

This analysis is not designed to single out one bank since the closure or relocation of bank branches by all banks reflect a national trend. BofA is no different from others that have made business decisions based on their pursuit of community impact, market share, and profits.

Banks are pulling out of urban communities, such as Little Rock. This does not bode well for communities that sorely need mainstream financial services over the long-term. When banks are unable to offer healthy financial choices, there is a recipe for other unhealthy alternatives to creep in. After all, nature abhors a vacuum. It is then very pertinent that all hands must be on deck to stem the challenging situation which the departure of mainstream banking creates. Local, State, and Federal government must all work together with relevant stakeholders in the community to reverse these emerging trends. To do otherwise would negatively impact the limited wealth that people of color and poor white people possess, further deepening the economic woes of these groups.


The study can be  down loaded here: Arkansas Bank Deserts