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Are brick-and-mortar bank branches still necessary?


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    The red brick and white columned that used to be a Ohio Savings Bank branch. Some residents say it served as a kind of gateway to the neighborhood.

    - Dan Bobkoff

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    Ohio Savings Bank said they closed the Larchmere branch due to a rent dispute.

    - Dan Bobkoff

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    Concerned residents meet regularly to try to figure out how to get the bank branch to reopen.

    - Dan Bobkoff

Lynne Alfred runs a shop down the street from the former branch and used to bank there.

Alanna Ferguson worries the closed bank will contribute to neighborhood decline.

Tess Vigeland: I literally can't remember the last time I visited a bank branch. In fact, my bank doesn't even have any. People like me are one of the reasons brick-and-mortar branches are closing all over the place. But a recent study from SNL Financial found they're shutting down more in poor neighborhoods than wealthier ones.

Reporter Dan Bobkoff of the public media project Changing Gears tells us what that means for those communities.


Dan Bobkoff: This former branch of Ohio Savings Bank is quickly becoming an eyesore in Lynne Alfred's neighborhood.

Lynne Alfred: There's litter and trash around. And, the paint is peeling.

The branch closed a year ago -- a rent dispute, the bank said. Its $23 million in deposits were transferred miles away to other locations.

With its red brick and white columns, the branch served as a kind of grand landmark.

Alfred: Well, it was a magnificent gateway to the Larchmere area.

Lynne Alfred and her husband have lived in the area for years. She remembers when they needed a loan, they used to just walk to the branch.

Alfred: We would say, "Hi, Dee, this is what we want to do," and she'd say, "Oh!"

The Alfreds got their mortgage there. Then, a home-equity line to finance the clothing and craft shop Lynne runs down the street.

Alfred: We'd sit down and talk about it and we'd fill out the paper work and that was it. It was just very easy, very friendly. We knew them and they knew us.

She's not even sure the loan officers bothered with a credit score.

Emre Ergungor is a senior research economist with the Federal Reserve Bank of Cleveland. He said this kind of relationship reminds him of a movie shown a lot this time of year.

Emre Ergungor: If you go back many decades, if you go back to the time of "It's a Wonderful Life" with George Bailey and his Building and Loan Association.

George Bailey: Mr and Mrs. Martini, welcome home.

Man: Good old George. He's always making a speech.

Imagine your loan officer coming to your moving day.

Conventional wisdom these days is that online banking and credit scores make this kind of George Bailey-style relationship obsolete. But in research he's done looking at branch closures in the Cleveland area, Ergungor finds that's not always the case.

Ergungor: Those kinds of relationships still matter in a small corner of the lending world and that's where the low-income individuals live.

Ergungor was surprised to learn how much losing a bank branch affects a lower income neighborhood like Larchmere, where half of all residents make less than $50,000 a year. Not only do locals find it harder to get loans, but loan defaults go up too.

Ergungor: It's a no-win situation.

Ergungor thinks this is because credit scores are no substitute for the judgment of a local banker. A banker may know so-called "soft information," like how a loan applicant's employer is doing. Or, how they've handled unexpected expenses like emergency medical bills. That helps the bank make a better decision about who should get a loan. People can have the same credit score but completely different approaches to repaying their debts.

Ergungor: When you can separate low-credit risk people from high-credit risk people, and you can serve the needs of the low-credit risk people, you see that credit becomes more available because the bank takes less risk. And when the bank takes less risk, you see fewer defaults later on.

But here's the thing: Even though it can be riskier for a bank to rely on credit scores alone, they often lose less money on defaults than it costs to keep a branch open.

Bill Mahnic teaches banking and finance at Case Western Reserve University.

Bill Mahnic: The only thing that goes through bank management's mind is: Can we make money on that branch?

Community leader: First thing on the agenda is the Community Re-investment Act...

Many in the Cleveland's Larchmere neighborhood believe their business should have been enough to keep their bank open. As their Ohio Savings branch was closing last year, one man collected 300 signatures protesting the move. That led to this group -- fifteen or so community members meet regularly in churches or libraries to figure out ways to bring a brick-and-mortar bank back to their neighborhood.

Some like Alanna Ferguson worry not just about access to credit, but about the elderly and disabled who can't get to other branches. And, worse, she worries the shuttered bank signals that the community is on the decline.

Alanna Ferguson: Perception is everything. And, if people perceive that there's no money in the community, or no real concern about home improvement or maintaining property or doing financial transactions, then certainly it can give that kind of a perception.

And, perception can lead to reality. To avoid that, the group has petitioned the FDIC to downgrade its rating for Ohio Savings Bank in the hope of pressuring the bank to reopen the branch.

In Cleveland, I'm Dan Bobkoff for Marketplace Money.

Lynne Alfred runs a shop down the street from the former branch and used to bank there.

Alanna Ferguson worries the closed bank will contribute to neighborhood decline.

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I'd suggest that they talk to some credit unions. Credit unions differ somewhat from banks in their "mission" and their structure. Not as stockholder short term profit/CEO bonus driven as banks, as well as being more restricted in investments.

As far as "bricks & mortar" goes, I think the extent of online bill paying, etc., is exaggerated & hyped, mostly by the banks and other corporate entities that would prefer that all payments/deposits were done electronically because it enables them to reap greater profits while offering no additional consumer/client protections.

I don't see much of an advantage over paying by check/mail. I do use autopay for a few accounts/paying 3-4 bills. I stopped autopay for a utility bill since the utility refused to wait until payment was actually due to withdraw the amount from my account. Initially, I thought it was an error but after speaking to customer relations and hearing lies/obfustication and no agreement to withdraw payment on the date due, I stopped autopay.

Recently, I decided to enroll in on line banking at the bank I keep my business accounts at (I have to use a bank, all my personal banking has been with credit unions for 20 years or so). It's supposed to take 48 hours max. I'm up to 5 days and counting. The problems are perhaps 30% due to my forgetting my password, the rest of the delays and problems are solely the product of the bank's online banking system or other bank issues. I don't even know if the errors I e-mailed the online banking support about have been corrected. I received an e-mail response and it indicated that one problem or error would be solved in 24 hours but it didn't address the other problem I'd requested assistance in solving or fixing. I have yet to check.

Based on experience, I don't have a high opinion of the reliability of: Windows operating systems, other types of software, DSL/wifi connections (or maybe it's the servers that seem to experience problems more often then seems to constitute "reliable"), plus I've experienced winter power outages where I live. Many parts of the US seem to be experiencing more power outages then usual, and that means that, w/out a generator, your computer doesn't work. Even if it does, will your internet connection?

Then there's the reliability of the bank's online system. How good its software is, how often its system is down, etc. In my limited experience, I haven't been impressed.

So for me, it's sometimes easier (and provides me w/more control over my money) to write a check, put it in the mail. I pay for postage, but I wonder if the cost is any greater than the time people spend dealing w/the vagaries of online bill paying, of perhaps having to upgrade their software or system more often then I do to do online bill paying, etc.

I have to wait on line at both the credit union or the bank about 50-75% of my visits so at least where I live, it seems that plenty of people--of all ages--still do at least some of their banking business in person.

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