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Fed's Powell: Bank consolidation weighing on rural communities

ITTA BENA, Miss (Reuters) - Decades of bank industry consolidation have weighed on the economies of rural areas as branches and local community banks disappeared and access to financial services declined, Federal Reserve Chairman Jerome Powell said on Tuesday, citing meetings of Fed staff held last year in communities where banks had closed.

The trend is likely stunting business and consumer lending, particularly for already poor and isolated communities, Powell said at a conference at Mississippi Valley State University addressing ways to improve financial services and reduce poverty levels in rural areas.

“The loss of the branch often meant more than the loss of access to financial services; it also meant the loss of financial advice, local civic leadership, and an institution that brought needed customers to nearby businesses,” Powell said. The largest impacts, he said, are on “small businesses, older people, and people with limited access to transportation.”

That comes at a time, he said, when the economy as a whole is doing well, but the benefits are not well spread.

“Data at the national level show a strong economy. Unemployment is near a half-century low, and economic output is growing at a solid pace,” Powell said. “But we know that prosperity has not been felt as much in some areas, including many rural places,” like the counties of the Mississippi Delta.

Powell spoke at a conference where such issues are at center stage, with members of local community development groups focusing, for example, on how “financial deserts,” particularly in rural places, have driven families to rely on high-interest payday loans and other more expensive forms of borrowing.

Powell said the Fed had some tools to try to address the problem, but that they are limited - enforcing, for example, the provisions of the Community Reinvestment Act that assess commercial banks’ loans to small businesses and minority applicants. Nonbank lending, of the sort that conference attendees flagged as a persistent problem, is not under the Fed’s oversight.

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Powell said he hoped a debate over change to the CRA would lead to a law that would “more effectively encourage banks to seek opportunities in underserved areas.”

He said he felt the Fed’s move to lighten regulations on community banks could help by keeping more of them in business.

Powell’s prepared remarks did not delve into monetary policy.

In an earlier question and answer session with students he said he does not think there is a large risk of recession right now.

“We don’t feel that the probability of recession is at all elevated,” Powell said.

Reporting by Howard Schneider; Editing by Andrea Ricci