Another thing is that banks do not want walk in customers. Walk-in customers cost them too much. Branches make their profit from the ATM attached to the building not the teller inside. One can assume that they view that minority neighborhoods would have a high rate of walk-ins and most will deal only in cash, with low deposit/withdraw ratios.

by RJ on Aug 18, 2009 11:32 am • link • report

1.) What does this have to do with urban planning or Smart Growth?

2.) Banks are not charities. In all likelihood, the reason that there aren't new banks in urban, predominantly minority areas, is because there isn't much money in those parts of the city.

3.) There are a great many other barriers to using full service banks. These include documentation(especially for immigrants), minimum deposits and check bouncing fees, not to mention general issues with trust and comfort in mainstream banks. Geography is probably very far down the list.

by Daniel on Aug 18, 2009 11:35 am • link • report

Given that most profit for banks comes from loans, I concur with Daniel and say that the risk factor is probably too high in the inner cities.

by MPC on Aug 18, 2009 11:48 am • link • report

Daniel - of course banks aren't charities - neither are groceries. What this has to do with urban planning is simply everything; how can we design cities so that the sort of segregation that currently isolates people who most need access to bank branches doesn't present a barrier to that access in the future, and how can we design communities so that locating banks where need is greatest is incentivized, or profitable for the banks?

I'm not convinced by your third point; I certainly won't argue that documentation, minimums and fees aren't an issue, but you seem to rather glibly assume that geography is far down the list. It's hard for me to see what you're basing that assumption on. If I was unable to get to a bank most days but lived near a check cashing place, and everyone I knew in the neighborhood used the check cashing place, I probably would too, regardless of how much I would prefer to use a bank.

by Lucre on Aug 18, 2009 12:05 pm • link • report

With the exception of the Commerce (now TD Bank) bank to trade in some coins, I haven't set foot in a bank branch in probably 7 years. In fact, my bank doesn't even have a single physical branch in the area. Everything is done online. Somehow, I survive without resorting to a check cashing store...

The key issue is not geography, or documentation, or fees, or minimum balances. It is "financial literacy." The sort of things you learn from watching your parents pay the bills on time, and by saving most of the money from your first paychecks from that first summer job, etc.

You could open a new bank in every low income neighborhood in DC tomorrow and it wouldn't put even a dent in the check cashing business.

By the way, does the DC public school system teach financial literacy? If not, they should.

One more thing. Urban planners love to tell other people how to run their businesses. If you think a neighborhood in DC needs a bank, then get off your high horse, draw up a business plan, and open a bank yourself.

Of just blog about it.

by metronic on Aug 18, 2009 12:13 pm • link • report

Placing of financial businesses does not fall under the proper purview of planning. To force a neighborhood on banks that would only support the payday loans etc. is purely government meddling and a recipe for financial ruin of said company. If the poor had what the banks wanted, don't you think they'd be there? The onus is not on the business owner, they only go to where a business model works. If the poor were responsible and would retain savings and good habits when it comes to banking, banks would be there. The flip side is that people in affluent areas know better than to use such "services" and avoid them, therefore these businesses don't exist there. The difference is NOT geography, its simple economics.

by Boots on Aug 18, 2009 12:18 pm • link • report

Normally I'd complain about comments like metronic's, and while I do think it's a little harshly worded, I think the comment is pretty spot-on in this case. There is literally no reason anyone has to go to a physical branch location to bank anymore and if people were even a little financially literate, they would avoid check-cashing places and payday lenders like the plague.

by Nate on Aug 18, 2009 12:19 pm • link • report

It's probably because of a lack of market options due to spatial barriers and transportation infrastructure deficiencies.

This is pretty circular logic. The establishments aren't there because ... the market options aren't there. There's a stereotype that people with low incomes aren't financially responsible. There's a further stereotype that minorities in inner cities are poor. So who makes more off of financially irresponsible people? Payday lenders and fast-food joints, not banks and grocery stores.

On a related note, these Captchas get harder every day.

by Tim on Aug 18, 2009 12:23 pm • link • report

Unless there are any bank desserts in DC this information is pretty much irrelevant to your site.

In my experience, there are real banks in just about every "underserved area" of DC. For example H street NE has two Bank of America branches and a PNC. Yes there are check cashing and payday loan places as well.

And really anyone who uses a payday loan or check cashing service as their primary financial institution out of anything but absolutely necessary emergency cash is just being extremely lazy, uniformed, careless, and irresponsible with their own money.

by Prof. Baracus on Aug 18, 2009 12:26 pm • link • report

Last time I went into a bank was to use their coin counting machine.

DC and MD ban payday lending, although VA allows it. Check cashing places are also regulated by each jurisdiction's banking regulators.

I imagine most banks don't locate in heavily minority areas b/c there's not much money to be made there. Credit unions have made a good attempt at reaching out to minority areas in DC, but they get pretty limited profit margins on that business.

by Fritz on Aug 18, 2009 12:27 pm • link • report

I think many of the comments here are somewhat short-sighted (though the original post could have done more to tease out the connection to urban planning). We should be able to agree that lack of access to mainstream banks/credit unions is a problem. Even if you only rarely set foot in a physical bank, other people may find it useful, if only to open an account. (Without reading the report, I'd guess that neighborhoods without banks also tend to lack ATMs for mainstream banks/credit unions. Without access to your bank's ATM or a physical branch, how do you deposit a check, or make a withdrawal without an out-of-network fee?)

I think the analogy to food is apt. When people notice problems (a lack of access to fresh local food), then they can look for solutions (farmers' markets, CSAs, etc.). Even where these are largely private solutions, there can be a public role: offering a public square to host a farmers' market, extending food stamps to cover purchases at farmers' markets, including information about such options in public health educational campaigns, etc. Remember too that under the aegis of (re-)development, public agencies often try to attract certain businesses to certain areas. This can involve "marketing" the community to companies to encourage them to open a branch in the area or even targeting incentives. We could even imagine a system where licensing of new locations is tied to offering service in currently underserved areas (e.g. your license application is fast-tracked if it's in an underserved area, or if you pledge to also open a branch/ATM in an underserved area). But it all starts with the realization that "hey, this is a problem". I think we ought to have an open discussion about whether "bank deserts" are a problem before jumping to the conclusions that it's nothing we care about.

If we can talk about whether Adams Morgan has too many bars, can't we talk about whether Trinidad has enough banks?

by Gavin Baker on Aug 18, 2009 12:42 pm • link • report

"Food deserts" and "bank deserts" do exist (though, as Prof. Baucus points out, the bank desert problem looks to be relatively limited in DC, per a Google map search for "bank"). But there are also a lot of poor, urban, heavily-minority neighborhoods with adequate access to banks and supermarkets.

Has anyone done a study on whether proximity to a bank branch improves financial outcomes for low-income people, or on whether proximity to a supermarket improves health outcomes? A comparative study could help answer the question of how much geographic access matters.

by Josh B on Aug 18, 2009 12:50 pm • link • report

This FDIC data is just another case of "they had to do a study to figure that out?"

The term "banking desert" might be a new term but the lack of banks in certain communities is not new nor is it a 'phenomenon'. Mr. Nairn assumes that people would go to a bank branch if they had the option, and that isn't true. In some communities there is a lot of mistrust of banks.

Some people think banks pilfer money from account holders. Others come from places where currency values fluxuate frequently and drastically; where leaving money in a bank could mean losing one's entire life savings but keeping it in a coffee can or under the mattress means you can trade it on the street quickly. Others have never learned about banking and don't know that banks are insured.

Mr. Nairn also assumes that fewer payday loan/check cashing locations would directly result in more bank branches. And that isn't true. There are many places in the US that have implemented restrictions on these payday loan activities--limiting the fees and interest rates they can charge. While it has resulted in many location closures, because the businesses just don't make enough profit, it has NOT resulted in an increase in mainstream bank branches.

Because banks know that they can't make a profit either, from cashing paychecks. They need people who take out loans and pay interest (on time) in order to stay in business.

by ogden on Aug 18, 2009 12:51 pm • link • report

A couple of things this post was not intended to say:

1. Banks should be more altruistic.
2. Poor people should be more financially responsible.
3. Geography is the only, or even most important, reason for income discrepancies.

That being said, this finding does highlight one more (probably minor) consequence of a spatial concentration of poverty and a potential lack of transportation options for those who cannot afford an automobile. I don't think we need to either blame banks or blame poor people to simply point out a demographic fact and its possible implications.

by Daniel on Aug 18, 2009 12:52 pm • link • report

The entire US Banking System is about to collapse.

This much we know for certain - you're being screwed - systematically - to cover the sins of these banksters who made loans to people who they had no reason to believe could pay:

Being in debt is about to get a lot more expensive for millions of Americans. Credit card issuers have been rushing to raise rates in advance of this Thursday, when the first provisions of the Credit Card Accountability Responsibility and Disclosure Act (CARD) will go into effect, with other protections starting in February 2010.

Right. Including those who are good credit risks.

This is the problem with allowing the blatant and outrageous fraud in our system to continue: Those who are prudent, who have done only good and not bad things, get reamed repeatedly and are forced, at gunpoint, to pay for the sins of those who committed that fraud.

Yet we, as Americans, permit this.

We absorb 20, 25, 30% interest rates (while the banks borrow at zero) so the bank executives who knowingly granted credit to those who could not pay, then sold worthless securities to investors, do not go to prison for fraud.

We pay more than $30 billion in overdraft charges and allow banks to "shuffle" deposits and withdrawals to generate the maximum in these fines so that the bank executives who are knowingly mis-marking "assets" at higher than their true values can "cover" their sin and do not go to prison for fraud.

We pay the FDIC "assessments" and "loans" from Treasury, as taxpayers and banking customers, so that the FDIC can repay depositors after it absorbs a loss that it should not have incurred - a loss that happened because OTS, OCC and the FDIC failed to close banks in a timely manner that were cooking the books when they either knew or will willfully blind to the control fraud taking place at these institutions.

by Karl on Aug 18, 2009 12:57 pm • link • report

Interestingly, when I saw the headline of this article I assumed it was about areas like my stretch of Route 1 in Laurel, where there are more drive through banks than I can count (four Chevy Chase Banks alone!) Drive through banks represent the other extreme, I suppose. Their curb cuts and wasteful land use obliterate the streetscape.

But for the topic at hand, a trustworthy community bank branch, despite the rise of online banking, is something that can benefit any community. I bank electronically, but often I find myself in my credit union discussing loans, mortgages, and financial planning. There's no reason these services shouldn't be available everywhere, including "bank deserts".

by Dave Murphy on Aug 18, 2009 12:58 pm • link • report

How do all you people cash checks if you don't walk into a bank branch? I have a side business, I don't earn enough to take plastic, and so checks and cash are my only options.

by Joshua Davis on Aug 18, 2009 1:01 pm • link • report

There is no reason to ever set foot in a bank branch. Every single transaction (with the exception of immediately cashing a check) that can take place in a branch, can now take place online. Open an account? online, get a loan or mortgage? online, deposit a check? through the mail, or, with some banks online via a cameraphone (and every single person in the "underserved neighborhoods" has one of these, don't kid yourself).

As for ATM's, give me break. In any American city I would guess that you are never more then 2 blocks from an ATM.

Don't blame the banks for the proliferation of check cashing and payday loans in certain neighborhoods. Blame the people that live in those neighborhoods for making bad financial decisions.

by metronic on Aug 18, 2009 1:03 pm • link • report

Daniel, I think you're spot on and here's a suburban flip side: in Fairfax bank branches are sprouting like mushrooms. The same is true of food retail. You can't swing a cat in Fairfax without hitting a supermarket. The obscene disproportion between the suburbs and northwest DC and other parts of DC in food retail has been well documented, but you've exposed another one.

Banks DO have community responsibilities, such as the Community Reinvestment Act, and they have been huge beneficiaries of government largesse. Now they are opening suburban branches all over the place, and we justify that as the operating of the free market? Come on.

by Douglas Stewart on Aug 18, 2009 1:08 pm • link • report

I agree with your general point, but like the food desert discussion, this topic is rendered in a somewhat facile manner.

First there are the behavior and attitude issues towards banks by certain parts of the population.

-- http://www.nytimes.com/2009/08/18/nyregion/18cash.html?_r=1&scp=1&sq=credit%20unions%20banks&st=cse

Second there are safety and profit issues for the banks. (The CRA means that banks still have to operate in locations that they prefer not to. E.g., when Riggs took over the National Bank of Washington in the early 1990s they were forced to operate some branches, like the 8th and H Street nE branch, that they wanted to close; or how Chevy Chase Bank was forced to open branches in areas of the region that it was determined that they "redlined").

Third, the solution, like with the food desert issue, doesn't all lie within banks. What about credit unions and other financial systems options?

-- http://www.nytimes.com/2008/11/09/magazine/09nix-t.html?_r=1&oref=slogin&ref=magazine&pagewanted=all

Have paychecks automatically direct deposited into ATM accessible accounts so that people don't need to go to the bank to cash certain kinds of checks to begin with. Etc.

But from an equity standpoint, I do think this is a reasonable issue to consider and bring up within the context of planning. It's just not easily solvable, because the issue isn't just "add more banks." It's a lot more nuanced than that.

by Richard Layman on Aug 18, 2009 1:11 pm • link • report

When Willie Sutton was asked why he robbed banks, his classic response was, "because that's where the money is."

And the reason why banks go to certain neighborhoods and avoid others is the same.

They are not a public service. They are profit-making institutions. Or at least, that's what they're supposed to be. They have no reason to open in deeply distressed neighborhoods where they don't believe they can make money, and where there are perceived issues of safety.

by Mike on Aug 18, 2009 1:38 pm • link • report

Joshua Davis:

I cash my checks at the ATM. Some of the newer ATMs make it extremely easy and fast, too.

by Alex B. on Aug 18, 2009 1:38 pm • link • report

This is a more complicated issue than the post gets into. I agree with the previous comment that it can be thought of as having different components - behavioral, social, profit, etc.

But it should be noted that there are financial institutions (regulated and unregulated) that do provide community-based financial services to low-income communities. These organizations are called Community Development Financial Institutions (CDFIs) and are certified by the Treasury Dept. They come in different forms - community development credit unions, banks, and loan funds. These organizations are capitalized in part by CRA requirements, a Treasury program of the same name, and other investors.

Also, I would argue that rural areas and Native American communities are much more disadvantaged in terms of responsible financial institutions than a city such as DC. One last thing to note is that the CRA was weakened during the Bush years and now only applies to very large financial institutions with large asset sizes.

by Mark on Aug 18, 2009 1:45 pm • link • report

When I banked with Bank of America, I deposited my checks at ATMs. It's gotten even easier now that they have ATMs that scan your check and record the amount automatically, but it was no big deal back when I had to write on the envelope. I also did a couple of deposits by mail when I was living for the summer in an area with no branches.

Now I have a checking account through Fidelity Investments, and essentially all my banking is handled online. They send me deposit slips and postage-paid envelopes, and I send them checks in the mail. If I needed a check deposited right away, I could take it to a brokerage office, but in practice I've never done that.

This isn't to say that branches aren't useful for lots of bank customers, but personally I have limited need for branch banking.

by Josh B on Aug 18, 2009 1:46 pm • link • report

This is similar to the library debate we had some months back. The District is spending lots of dollars redoing libraries ... at the same time that people are turning to on line sources for their research needs. The only people I see using libraries on a regular basis nowadays are people looking to keep warm (or cool) and those looking for meeting space, studying space, whatever type of space. I'd hate to see banks built in 'underserved' areas to end up serving similar purposes. Our bank fees (and government subsidies to banks) are high enough as they are.

by Lance on Aug 18, 2009 1:55 pm • link • report

Daniel,

Your article points out that poor urban areas have fewer banks. This is hardly news. So it would be helpful if you came up with policy suggestions, a new way of looking at the issue, or at least some interesting comparisons that others may have missed. Instead all we have is a new turn of phrase "bank deserts."

I'm sure that there is a lot of interesting research out there. How does access to banking for poor urban areas compare to that in poor rural areas on a per capita basis? How about poor suburban areas? Do more bank branches change behavior?

The other issue is that you compare the number of bank branches in an area without considering the size of the costumer base. To me, that implies that there is a fixed amount of bank branches possible, and all one need do is reallocate banks from wealthy areas to poor areas. That simply isn't the case. You may not have intended to say that, but others clearly thought so. See for example Douglas Stewart's comments

by Daniel S on Aug 18, 2009 1:58 pm • link • report

In addition to the federal Community Reinvestment Act requirements, DC has its own version that's applicable to any DC-chartered banks. It's been criticized as being heavily burdensome on banks and is likely a major reason why DC only has 2 or 3 chartered banks (banks with charters from other states or the Feds don't need to abide by the DC version of the CRA).

It's a great example of what happens when DC do-gooders try to come up with all sorts of additional requirements for businesses: They just don't locate here or they find loopholes.

As for the banking desert: The Adams Morgan and Columbia Heights areas are probably a great petri dish of this issue. In both neighborhoods, you have a pretty wide selection of bank branches. Yet you also find plenty of check-cashing places. Why? Because a fair number of people can't open a bank account because they don't have the necessary identification paperwork. And then there's a good number of people who just have no experience dealing with banks and therefore distrust them.

Financial literacy education is indeed important and Mary Cheh introduced some legislation a few years ago requiring DCPS to come up with financial literacy courses and creating some advisory board of some sort (no idea what happened to either of those issues). I'm not sure the issue is having more banks in poor areas, as much as it's trying to get people to avoid making incredibly stupid financial mistakes.

by Fritz on Aug 18, 2009 2:25 pm • link • report

This was covered in depth and fairly well by the Washington Post a few months ago:

http://www.washingtonpost.com/wp-dyn/content/article/2009/05/17/AR2009051702053.html

I would like to add, though, that there is some personal responsibility that goes into this. It may be more difficult to do things the "right" way (in quotes for a reason!) but that doesn't mean that it can't or shouldn't be done, but the state of things now certainly does not make it easy.

by Catherine on Aug 18, 2009 3:41 pm • link • report

Thanks for the link Catherine. I've been looking for that article all afternoon.

by Daniel S on Aug 18, 2009 4:21 pm • link • report

Banks are important to community development because their presence fosters small business--a place to deposit cash receipts, as well as a convenient source of credit. Neighborhoods that have residential vitality but not commercial development oftan are "bank poor". It has everything to do with planning. the idea that people should "defend" banks seems ludicrous--they're going broke because they abandoned a fairly simple business model that enabled them to prosper but didn't satisfy Wall Street.

by Rich on Aug 18, 2009 5:04 pm • link • report

It is amazing that so many people are posting responses that show they give less than a damn about the real "working poor"- those paycheck-to-paycheck living, yet honest and intelligent folks in our community that just don't have the cash flow to save significant amounts that might entice more banks to locate in their neighborhoods.

by KevinM on Aug 19, 2009 9:31 am • link • report

You describe payday lenders as "businesses that Â… wave fast money in their face with unreasonable interest rates attached." This is an unfair stereotype of the payday lending industry that is often perpetuated by special interest groups and regurgitated by uneducated media.

Payday loans cost about $15 per $100 borrowed, a reasonable rate by any business standard. These are two-week loans and cannot be offered at the same APRs as annual credit products.

Customers use payday advances to cover small, unexpected expenses between paydays. They are people who have a bill to pay today and choose between bouncing a check or paying overdraft fees, late bill payment penalties or credit card late fees, asking family for money or pledging personal possessions as collateral.

by Ryan on Aug 19, 2009 2:06 pm • link • report

Check cashing places serve a purpose and fill a need. When i first came to DC I didn't have a bank account at any local branch, or any bank for that matter. Because of that no bank would cash my first paycheck. They insisted on holding it till it cleared. I was out of cash, needed food and had to pay rent. i took my first paycheck to a check cashing place (on the corener of 14th and U NW), paid the % fee and got cash that I needed for FOOD. I paid rent in cash and used the little left over to open an account in a local bank (not the one that refused to cash my paycheck). I don't know what I would have done without access to that check cashing place. All this talk of ATM cards blah blah assumes a person already has cash stored somewhere. Sometimes a person is litterally penniless - no bank account anywhere - and has a check for $300 in his/her hand.

by Bianchi on Aug 20, 2009 10:27 am • link • report

Daniel,

While lower-income, inner-city communities are underserved by a variety of institutions (banks being just one of many), I'm confused as to how your posting is newsworthy as this has been an obvious issue for decades.

In taking shots at "payday lenders" and "Quik Marts," it would seem that your frustration is ill-placed. These businesses have stepped up to the plate to offer services where banks, credit unions and grocery have chosen not to locate branches and stores.

They MAY charge more for certain items, but in many cases, they Charge LESS. Compare the price of a gallon of milk at a grocery $3.49 vs. a Quik Mart $2.69. Compare the cost of a payday loan at $0.15 cents per dollar loaned for 2-weeks vs. a bank or credit union overdraft of $0.75 per dollar borrowed until your next deposit (probably a lot sooner than two weeks)

While big institutions may avoid the inner city as less profitable, smaller players may occassionally have to charge more to carry any associated risks, but at least they are there, providing service.

Try venting your frustration at those deserving.....

by jkursman on Aug 20, 2009 11:01 am • link • report

Bianchi, You could have taken your check to the bank that it was written on (i.e., the bank your employer was using.) With proper identification they HAVE to cash it for you ... Though they probably instruct their tellers to try to convince you to open an account. I think this falls under the 'financial literacy' argument a few of the posters spoke about earlier in the thread.

by Lance on Aug 21, 2009 9:31 am • link • report

thanks Lance for calling me financially illiterate. It was an out of town bank. Should I have driven to Cleveland? it's so easy to tell other people what they should do when you've never experienced the particular difficulty.

by Bianchi on Aug 21, 2009 11:30 am • link • report

Lance, perhaps you are unaware that many banks now have a practice of charging a fee to cash checks drawn on their own establishment, unless the person cashing the check does indeed also have an account at that bank. Now, you may find this just another part of the cost of doing business, so-to-speak, but when folks go to cash a check they want(and need) all of their money, not the face value of the check minus $5.00 or whatever the bank is charging. I have several times required employers to find a different manner(perhaps cash) to pay me because I refused to accept a check drawn on a bank that uses this practice. I was often encouraged to just deposit the check(s), but then I would have to wait at least several days for my money, while the bank continues to make money on "the float".

by KevinM on Aug 23, 2009 6:45 am • link • report