U.S. Bank mergers cause problems for low income areas, researchers say.

Bank mergers in the U.S. generate negative economic impacts on poor neighborhoods, resulting in an increase in property crime, researchers report in The Journal of Finance (April, 2006).

The authors argue that bank mergers should be carefully regulated to prevent economic deterioration of the affected neighborhoods.

Among the significant effects noted in the 44 page article are that the lack of competitiveness in the local loan markets results in lower commercial real estate investment and a drop in real estate prices. This causes unemployment to rise alongside an influx of lower-income households. An increase in property crime occurs within the affected neighborhoods.

Based on FBI Uniform Crime Reports, the researchers found, "... a mean decline in banking competitiveness due to mergers from 1992 to 1995 is associated with approximately 24,300 more property crime offenses over the period 1995 to 2000."

The poorest neighborhoods are found to suffer the greatest increases in crime following bank mergers.

www.afajof.org/journal

In Canada the closing of bank branches have been a concern for rural areas. However, the redevelopment plans for Regent Park social housing has focussed attention on the departure of bank branches from low income urban areas. The most readily available financial services offered are cheque cashing, payday loans and overseas money transfer at higher cost than the mainline banks. The clients are increasingly immigrants and low paid service workers. Many of these workers make remittances to their families outside services. The same financial services are often found in high income areas where immigrants are employed as domestics and restaurant workers.