This banking desert is defined as a census tract or community with no bank branches within 10 miles of its core. The Federal Reserve Bank of New York recognized 1,214 banking deserts in the United States, most of which are in sparsely populated areas. Twenty-three percent of all banking deserts are in metropolitan statistical regions (MSAs), with the rest in rural locations. Some urban statistical areas, such as New York and Boston, had no banking deserts.

Banking Desert

Bank deserts are places with no access to branch banking. A financial desert might exist for a variety of reasons. For example, the formation of an economic desert may come from:

• Branch closures have been regarded as underperformers. 
• Failures of banks, population declines. 
• Demand for online banking services has increased, while the desire for branch banking has fallen.

Many banks were forced to shut down due to the financial crisis of 2008 and its aftermath. Between 2008 and 2016, 6,008 of 95,018 branches were closed, establishing 86 new banking deserts in remote rural areas. Minorities were disproportionately affected by these banking deserts, with 25% of all closures happening in majority-minority precincts.

Existing Banking Deserts

Census tracts are labeled “majority-minority” when more than half of their people are black or Hispanic and “lower income” if average family incomes fall into the lowest quartile. Huntsville has a higher population density than banking deserts, with low-income and predominantly minority communities.

The deserts housed 3.74 million people, with 291,560 in urban lower-income tracts and 475,156 in rural lower-income sections, whereas 265,323 were in urban majority-minority areas and 209,011 in rural majority-minority lots. 4. Majority-minority populations were similarly dispersed across desert and non-desert regions in rural regions. Still, they were less prevalent in urban tracts with deserts than in urban areas without deserts.

Possible Banking Deserts

If branches continue to disappear, the number of people trapped in locations without bank services will likely grow. According to this viewpoint, available resources could be better spent attempting to avoid the formation of new deserts in places where branches already exist rather than replenishing current deserts using new components. We identified units more than ten miles apart—branches that, if closed, would create new banking deserts. Our findings are based on economic and demographic data gathered for the county sub-division where each unit is situated.

In 2014, we found 1,055 possible deserts, with 204 in urban and 851 in remote regions. The population density in these possible deserts is low. Areas with a scattered population are more likely to become banking deserts. The median income in prospective urban deserts is $46,717, whereas it is $41,259 in possible rural deserts.

The Ending Branches

The median deposits in possible deserts are $23 million in urban regions and $20 million in remote areas. This is in contrast to the enormous number of branch closures by central banks, which led to the formation of the current deserts. Existing deserts are more prevalent in the South and West, but possible deserts are much more likely to be discovered in the Midwest.

It’s been discovered that the number of individuals living in deserts with lower family incomes and higher minority representation is relatively tiny. We also found that lower-income families, but not minority homes, are more reliant on a final branch, the closure of which would result in new deserts. Because these branches are run by local banks, which face some operational challenges compared to bigger banks, the most disadvantaged individuals rely on the neediest institutions.

Closings of branches and loss of soft information

Regardless of whether other branches operate in the exact location, the simple closure of a unit can restrict the provision of mortgages and loans to small businesses. According to recent research by a U.C. Berkeley economist, once combining banks discontinued a branch, the volume of small business loans in the tract declined by 13% for the next eight years. Mortgage supply dropped as well, but still only momentarily. The decline in both lending categories was concentrated in the same areas that we are worried about regarding low-income and majority-minority lending. This study, mainly the latter result, prompted us to explore banking deserts and branch closures.

It was discovered that the decrease in small business financing was maintained even after opening a new branch. This shows that the shrinkage may have resulted from wasted knowledge whenever a local branch-business link is severed rather than from less competition. Soft information is thought to be especially important in small company funding. Along with the standard complex data, branch managers’ knowledge of borrowers’ intangible attributes (character, competency, and work ethic) and local business circumstances can inform lending choices (credit score, balance sheet status, and collateral). Because soft information is subjective and difficult to transfer, if a branch manager is dismissed when a branch closes, the data may not be retrieved. The manager’s former small business debtors may be required to pay more for credit or go without.

Banking Deserts’ Disadvantages

Banking deserts may be brutal for residents for a variety of reasons. The first problem is one of closeness. If someone has to deposit or withdraw money or request a loan, they may have to spend an hour or more going to their nearest bank branch, or they may have to use online financial products such as web-based loans or E-wallets. This final method may require some computer literacy.

Aside from the technical challenge of finding a tangible branch, a shortage of banking accessibility can make developing healthy financial habits more challenging. Financial literacy may suffer due to a lack of interaction with the banking sector. This, in turn, can make basic financial concepts like budgeting, saving, and credit development more difficult to grasp.

What Exactly Is Unbanked?

You are unbanked if you do not possess a bank account. Roughly 5% of the population in the United States is unbanked. Underbanked individuals maintain at least one bank account but utilize alternative financial services such as check cashing or payday lenders. An approximated 13% of the populace lacks access to financial services.

Desert Banking and the Unbanked

An estimated 5% of the American population, or 7.1 million families, are unbanked, which means they do not have a bank account. Another 13% of Americans are underbanked, which means they have a checking account but utilize other financial services like payday loans and check-to-cash.

The answer appears to be no regarding whether banking deserts lead to a more significant number of unbanked and underbanked people in that area. According to research, physical closeness to bank branches isn’t what causes some people to stay unbanked.

• Instead, people may choose not to open bank accounts since they believe banking is too expensive. They think they can’t create a typical bank account due to a previous banking error that led to a poor ChexSystems report. Are you skeptical of the financial system or the government’s control? 
• She was speaking a significant language other than English and struggling to overcome linguistic obstacles regarding banking. 
• They are unauthorized and do not feel they will be able to establish a bank account in the United States.

These are just a few reasons people may avoid bank accounts if they reside in a banking desert.

How can you survive in a financial “desert”?

Avoid making phony pals.

If you are without a checking account or a branch close by, you may be cashing a check at a check-cashing shop. However, based on how much your local retailer charges, you may have to fork up a significant portion of your income simply to receive your own money. Fees start at 1% and go up to 12%.

Most check-cashing businesses also provide payday loans aimed at customers who cannot borrow from banks. These small, short-term loans feature absurdly high fees, ranging from $15 to $30 for every $100 borrowed. That is, provided you can repay them on time and avoid being swamped in interest payments.

These establishments promote themselves as vital financial outlets for desert inhabitants, yet they are never your sole option. Personal loans are versatile and easy to get through the internet. Some banking institutions will let you set up direct deposits for your wages without visiting an actual location.

Make use of an online banking institution.

Several online accounts will provide you with a debit card that allows you to make free, unlimited withdrawals from non-bank ATMs. Because they don’t have to operate hundreds of physical branches, most digital financial institutions can afford to impose lower costs and provide more benefits. Aspiration charges for anything you want—even if it’s nothing.

Maintain vigilance on your credit score

To get a solid credit score, you must have a lengthy history of using various forms of credit. If your credit score suffered due to late payments on a fraudulent payday loan, you might have difficulty obtaining a mortgage or a college education loan in the future. Many sites will enable you to check your credit history online for free and notify you if your score changes.

Allow an app to manage your payments.

Tally is a free program that keeps track of your payment schedules, monthly minimums, and interest rates. You only need to add one monthly bill to the app’s profile, and the app will manage the rest. A single late payment can cost you a lot of penalties and make it even more challenging to get a reasonable rate in the future.