Abandoned Communities: The crisis of UK bank branch closures
After a year of campaigning on bank branch closures, Move Your Money today launches our new research report that reveals for the first time the devastating impact of branch closures to local economies and communities throughout the UK. The launch coincides with a parliamentary debate on branch closures, with the crisis in banking provision sweeping throughout the nation but particularly affecting Wales, Scotland, and rural England localities.
The number of British bank and building society branches has been declining since the demutualisation wave of the late 1980s, but the pace of branch closures has accelerated rapidly in the last few years. In total, Britain has lost 53% of its bank branches since 1989, leaving 1,500 communities with no bank, and another 840 with only one bank remaining. More than 600 branch closures have occurred in the last year alone, and the Swiss bank UBS has predicted that the UK is set to lose another 50% of its total branch network in the next ten years.
Britain’s major banks would have you believe that this is due to a precipitous collapse in demand for bank branches, and the rise of online and mobile channels for people to access their money. Digital services have undeniably changed the way we engage with our bank, but all the available evidence suggests that not only is there clear and consistent demand for branches declared by the British public, but also that this preference is also borne out by people’s actual behaviour too. This is a point that has been roundly ignored by the current research literature on this topic.
Instead, current research largely focuses on the financial pressures that banks are under regarding bank branches, and the strategies around which they should “rationalise” their branch networks — or, in other words, how, where, and why they should cut their branch numbers. Studying these industry-focused reports is instructive, because they suggest that far from responding to demand pressures, the major UK banks are simply closing branches in poorer areas and opening or retaining them in more affluent areas — often regardless of demand, or of the impact that a branch closure would have on that area or its population.
Far less researched is the actual impact that these closures are having on abandoned communities and the people they leave behind. Our new research paper seeks to begin to redress that imbalance, by bringing those on the front line back to the centre of the debate.
Move Your Money has been campaigning with local communities affected by branch closures for the last year, and we have seen first hand the negative impacts of bank branch closures for communities, which includes closed businesses, failing high streets, and cash shortages. In this research we demonstrate that it is predominantly the elderly and those on lower incomes who are adversely affected by bank branch closures. We also show that the majority of bank branch closures are happening in areas with large demographics of the poor and/or the elderly. In other words, we find that bank branch closures are consistently occurring in those areas that are most dependent on bank branches, and most likely to be adversely affected by their closure.
By mapping bank branch closures against the British Bankers Association postcode lending data, we show that bank branch closures dampen SME lending growth by 63% on average in postcodes that lose a bank branch. This figures grows to 104% for postcodes that lose their last-bank-in-town. On average, postcodes that lose their last-bank-in-town receive almost £1.6million less lending over the course of a year — a significant and damaging drop in funding for areas that are already under commercial and economic pressure.
We have found consistent and widespread accusations that Britain’s major banks are manipulating branch usage figures to justify pre-determined closure decisions. Banks do not take into account the public interest or the likely damage a closure will have on the local level when making these decisions. As a result, we find the Access to Banking Protocol wholly inadequate in protecting local branches from closure, in protecting the public interest, and in ensuring adequate banking provision on the local level.
As a result, we find that the dominant paradigm of competition in banking and financial services has abjectly failed to provide the key functions of bank branch provision and facilitating access to the financial system for the public.
We conclude that bank branch provision and access to the financial system for underserved communities is a public good, and that the Government should take an active role in the public provision of such banking and financial functions. We then make a series of policy recommendations that will help to explore and facilitate this solution.
1) To strengthen the Access to Banking Protocol by:
- Forcing banks into data transparency on branch closure locations and dates
Allowing for greater scrutiny of branch closures, assessment of their local economic impact, and to formulate appropriate policy responses to the evolving bank branch landscape.
- Implementing a rigorous public interest assessment before closing a branch
Closure decisions must be genuinely influenced by the needs and likely impact of a closure on local communities, to avoid further abandoned communities.
- Meaningfully consulting local communities in advance of closure decisions
So that those who would be most affected by a bank branch closures have the ability to influence the bank’s closure decision.
2) To recognise and investigate the case for banking in the public interest
- Undertake a full independent and public review into the case for state provision of banking in the public interest
To explore where, how and why private competition is failing in the adequate provision of banking and financial services, and to investigate the feasibility of direct Government intervention to plug those gaps.