While the buyouts and bailouts are well publicized, banks in low income neighborhoods are closing at an abnormally high rate. Conversely, wealthier neighborhoods are experiencing an increase in bank openings. Lower income neighborhoods need banks, which can serve as financial stabilizers, allowing people to save and borrow money at competitive and fair rates. Experts worry that these banks will be replaced by cash advance offices or predatory lending practices. What else could the loss of banks mean for these communities and the economy as a whole?
http://www.nytimes.com/2011/02/23/business/23banks.html?_r=1&hp
This may be a big stretch but I supposed the bank closings in low income neighborhoods could potentially lead to more crime. If people do not have a means of accessing money in a timely manner, individuals may resort to stealing or other means of obtaining money. I am just thinking of very low income neighborhoods where crime is likely more existent there to begin with. Would the bank closings have an effect on interest rates or inflation in any way? It's been awhile since I've had Macro.
ReplyDeleteI feel that adding banks would be more of a positive thing than a negative. It would definitely bring some more stability into an area, even if it is a low-income neighborhood. Sure, the possible idea would cross into people's mind about theft, but having a bank would allow for more money to be transferred and loaned out. Now, whether some of those loans would be a good investment for the bank and if they would be repaid is another story. Yet, banks are doing what every other business is doing, cutting costs. This could end up hurting and exploiting the neighbors around the area. This could make people a little more worried about investing their dollars into an institution.
ReplyDeleteClearly these banks are not doing very well in these low income areas, so it would be economically inefficient to continue running them.. It sucks that residents of these low income areas don't have easy access to such services, but I wouldn't think a bank would be terribly far away from them. Maybe a couple minute drive or bus ride. What are some of the characteristics of these cash advance places? Are they entirely bad?
ReplyDeleteDevil's advocate: If I am a bank owner, would I be interested in putting a bank in a low-income neighborhood? Probably not. Bank are there to make money, not improve neighborhoods. Banks make money on the interest they collect from loans right? So, in theory, low income borrowers are less likely to get high dollar loans, and may be more likely to default. If I am a bank, why would I want to expose myself to that risk for such a small reward when I can move to a wealthier area with a lower probable risk of default, and a higher return on my loans. How much can low income families realistically save anyway? I think we brought this up in class as one of the main obstacles where equity was concerned. From a business standpoint, banks are going to go where the money is. The unfortunate reality is that banks arent going be responsible for helping to prop up a low income area. They provide a service that is predicated on their turning a profit. When the profits dry up, so does the service that they provide. It then falls to government and the public to deal with the social inequalities of everyday life.
ReplyDeleteI do think that the cash advance places are the worst thing that could enter these areas. It's legalized loan sharking at best. But left with little alternative, people will use them and probably be worse off for doing so.
Grocery stores are also needed with banks in low income neighborhoods. The much needed Park Street market on the the northside of downtown is subsidize by the city as professor M said earlier. Could this be a solution? Inefficient but equitable?
ReplyDeleteIt seems that the bank closings in low- and moderate-income neighborhoods could be very detrimental to these local communities. Without these banks, community members will be forced to go through predatory lenders such as check-cashing centers and pawnshops, and the communities will lose a culture of saving money which could prove harmful for their financial circumstances. On the other hand, banks are businesses that are trying to make a profit. So, why would they want to stay in a community that provides losses on their financial statements? I wonder what would happen if the Community Reinvestment Act was actually enforced. Would there be fewer bank closings in these lower income communities?
ReplyDeleteThis is what I'm thinking: the banks probably would not have given the loan to these people as it is specially if they can't even take a bus ride to a bank in the next neighborhood. Banks, like everyone has said, is just like any other business and the goal is profit maximization. They make their money in giving out loans at high interest rates but taking money (deposits) at a lower rate. In these areas, the deposits would be low and the request for loan facilities would be high and as Richard said this is, most probably a losing strategy.
ReplyDeleteObviously, however, this isn't ideal from a equity point of view.
Banks, like any other business need to operate what is most cost efficient and profitable. So I do not blame bank owners from pulling out of low income neighborhoods. Would low income families really be able to repay their loans in a timely fashion, probably not. Thus, not a good investment from the bankers standpoint. At the same time I do feel bad for the people living in these areas who use these services. I don't know much about these cash advance places, perhaps they are a better solution then your standard bank.
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