J.P.Morgan Branches Out to Poor Neighborhoods

By CultureBanx Team

  • 30% of the new J.P.Morgan branches will be in low to moderate income areas

  • New small-business loans declined 13% in the years after a bank branch closed

For years the biggest U.S. bank J.P.Morgan (JPM +1.15%) has exemplified the industry trend of cutting back their branches in less affluent areas, now it’s taking a new approach to increase deposits in these communities. The company plans to enter into nine new U.S. markets and 30% of the branches will be in low to moderate income areas. Even though we live in a digital financial society, just how valuable are physical bank branches when it comes to closing the wealth gap?

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Why This Matters: Increased competition with banks in underserved communities is a good thing for services such as personal checking and small-business lending. Bloomberg reported a 2014 MIT study found that even with other banks nearby, branch closures in low-income and minority neighborhoods made it harder for local businesses to get loans. In fact, the number of new small-business loans declined 13% in the years after a bank branch closed.

A 2014 MIT study found that even with other banks nearby, branch closures in low-income and minority neighborhoods made it harder for local businesses to get loans

The deposit wars are only going to escalate between J.P.Morgan and its main rivals Bank of America (BAC -0.54%) and Wells Fargo (WFC +0.62%), as they look to further encroach upon their territories. The new markets where J.P.Morgan is going to set up shop are Charlotte, Raleigh, Greenville, Kansas City, Minneapolis, Nashville, Pittsburgh, Providence and St. Louis. Federal Deposit Insurance Corporation (FDIC) data shows that Bank of America or Wells Fargo are a top lender in seven of these nine cities.

Data from J.P.Morgan found the firm had 26% of its branches in low and moderate income areas, while Wells Fargo and Bank of America each had 29%. S&P Global noted that nationally banks have closed 1,915 more branches in low income areas than they’ve opened in the past four years.

What’s Next: As banks continue to compete for customer deposits to spur growth it will be interesting to see how much the racial wealth gap will shrink. J.P. Morgan will open 90 new branches this year and the lender is planning to work with community groups on job training efforts and hire 700 employees.

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