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How the Disappearance of Locally-Owned Banks Hurts Rural Economic Development

posted by Nathalie Martin

In preparation for some upcoming projects with sociologists, including my new collaborator Rob Mayer (Utah) and on another project, Alan Burton (UNM Sociology professors and UNM law student), I am beefing up on my sociology research. Alan directed me to a recent article, Restructuring the Financial Industry: The Disappearance of Locally-Owned Traditional Financial Services in Rural America. This article explains how the loss of small banks in rural America has negatively affected economic development, which has in turn reduced opportunities for rural communities to increase income, reduce poverty, decrease out-immigration, and reduce crime rates.

As the authors (Tolbert, Mencken, Riggs, and Li) explain, local businesses benefit local communities by building community ties, trust, and resilience in hard economic times, and by allowing local small business owners to be agents for economic and social development. Yet as these scholars point out, small entrepreneurs need credit to thrive. This article tracks the loss of local banks in rural communities over the past 30 years, which loss has led to a decline in trust-based, reputation-based, community lending. This loss has correlated with a large decrease in local small businesses in parts of rural America, as well as an influx of nontraditional lenders such as payday and title lenders. I strongly recommend this article, which explains in detail the consequences of this devastating combination of loss of small businesses in rural America and growth in these same communities of high-cost credit.

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