Restructuring of the Financial Industry: The Disappearance of Locally Owned Traditional Financial Services in Rural America

Abstract

Restructuring in the financial services industry has altered the relationship between small business owners and capital. In the past small businesses have relied on relational, or soft data, lending from locally owned banks for capital. The proliferation of absentee-owned local branch networks brought standardized practices, thus eliminating the autonomy of local loan officers to utilize soft data in loan decisions. In this article we examine the changes in the percentage of traditional financial services that are locally owned in three county types: metropolitan, micropolitan, and noncore. We utilize the Longitudinal Business Database at the U.S. Census Bureau Center for Economic Studies. We examine changes in local ownership of traditional financial services between 1976 and 2007. We find that the rate of decline of local ownership has been greatest in the noncore (most rural) counties. We also explore to what extent these patterns are related to the emergence of alternative financial services during the same period. We find that such alternative services are growing in all three county types, but at rates not significantly different than the population growth for these county types. We supplement our analysis with data from qualitative interviews with small business owners throughout rural Texas. We conclude with a discussion of implications and plans for future research.

Food Insecurity across the Rural-Urban Divide: Are Counties in Need Being Reached by Charitable Food Assistance?

“…However, whether these charitable food assistance programs are truly directed toward areas in need remains an open question. There is evidence that rural areas are less well-served with respect to some services such as health care (see Aday, Quill, and Reyes-Gibby 2001; Fields, Bigbee, and Bell 2016; Kaufman et al 2016) and banking (see Tolbert et al 2014). The most common charitable feeding programs operating in rural areas are traditional food pantries and mobile food pantries.…”

On the Viability of Fixing Leaky Supply Chains for the Poor Through Benefit Transfers: A Call for Joint Distribution

“…It has been argued that high embeddedness allows the banker to look beyond pure "hard" financials and into other relational factors such as the reputation of the person seeking a loan, their standing in the community, trustworthiness, etc. (Tolbert et al 2014). Therefore prima facie, one would expect a similar U-shaped relationship as was observed in Deposits per Branch to manifest for Loans per Branch as well, wherein banks with high and low number of branches would have a higher number or loans per branch than banks with a moderate number of branches.…”

“…(Tolbert et al. ). Therefore prima facie, one would expect a similar U‐shaped relationship as was observed in Deposits per Branch to manifest for Loans per Branch as well, wherein banks with high and low number of branches would have a higher number or loans per branch than banks with a moderate number of branches.…”

Locally Owned Bank Concentration and Business Start-Ups and Closures in U.S. Metropolitan, Micropolitan, and Rural Counties from 1980-2010

“…The U.S. pattern of bank mergers and acquisitions over the last 35 years has meant a decline in the number of bank firms and an increase in the number of bank establishments. 1 During this same time frame there has been a significant decline in the percentage of locally owned banks in all U.S. counties (Tolbert et al, 2014).…”

“…The patterns of mergers and acquisitions in the U.S. financial sector since the 1980s have led some scholars to be concerned about disadvantages for businesses that attempt to start and/or operate in rural locations (see Tolbert et al, 2014;Flora et al, 2015;Mencken and Tolbert, 2018). Historically, local banks and local businesses formed symbiotic relationships, which often included practices of 'relationship' lending.…”