The Effect of Closings on Local Economic Outcomes, October 2015. The reason is the information-intensive nature of the underwriting process. Even in areas with plenty of bank branches, declines in small businesses lending because of the loss of the relationship between a small business owner and their loan officer were significant. Once broken, the study found that those relationships take years to replace.
The impact of branch closures were found to be more severe in tracts with lower median income, a higher fraction of minority households, and where firms were, on average, closer to their lending. 12 Donald Morgan, Maxim Pinkovskiy, and Bryan Yang, “Banking Deserts, Branch Closings and Soft Information,” Liberty Street Economics blog, March 7, 2015, http://libertystreeteconomics.newyorkfed.org/2016/03/bankingdeserts-branch-closings-and-soft-information.html.