Feds to investigate rash of border bank closures – The San Diego Union-Tribune


A small team of federal officials is scheduled to visit San Diego next month to investigate why so many bank branches are closing along the international border and how that’s affecting businesses, consumers and the overall economy.

The team will also explore how the increasing reluctance of banks to work with wire transfer companies is affecting the ability of people near the border to send money to family members in Mexico and elsewhere.

The team will subsequently visit cities in Arizona and Texas and then create a lengthy report that may include recommendations for policy changes or new federal legislation that could help solve the problems.

Roughly half the bank branches in many border towns, including San Ysidro, have closed in recent years, creating headaches for small businesses and forcing some residents to go without bank accounts.

Many say the closures are stifling business along the border, where cash remains crucial to commerce, and threatening long-term prosperity by leaving a trail of empty storefronts and making loans harder to secure.

In addition, many small businesses need banks to get change, to get cash for supplies and to make nightly deposits for security purposes.

Meanwhile, stiffer money laundering penalties faced by banks have made them less cooperative with wire transfer companies and more inclined to close the accounts of people who appear to be making suspicious transactions.

“We will interview local banks and hold discussion groups with businesses and consumers to get after this as rigorously as possible,” said Lawrance Evans, a financial markets director for the U.S. Government Accountability Office. “We’d like to get a sense of the extent to which the problem actually exists and then go forward with any solutions we might uncover.”

Banking industry officials have acknowledged the rash of closures along the border in recent years, but say there are no simple explanations.

They say it’s likely a combination of underperforming branches in those locations, increased competition and more people banking online, which reduces the need for brick-and-mortar branches.

“What it often boils down to is economics,” said Rob Rowe, senior counsel for the American Bankers Association. “For some reason or other a branch no longer is profitable, either because of the needs for staffing or the market area may have changed.”

Some have questioned whether banks are closing branches on the border because they are typically less lucrative based on relatively low-income demographics nearby.

Rowe said it’s not that simple.

“There is no one cause and effect,” he said. “They go through a lot to open a branch, so closing a branch is not something they do lightly. They don’t say ‘there’s all low-income people and we just don’t want to be here’ — that’s not the way banks operate.”

Rowe said the banking industry is upbeat about the federal team visiting border towns to investigate the problem.

“We would welcome that kind of information,” he said. “It would help everyone get a better feel for what’s actually happening. We hear anecdotal evidence, but that’s it.”

The investigation was spurred by federal lawmakers from both parties, including Rep. Juan Vargas, a Democrat whose district includes San Diego’s South Bay.

Evans, the GAO official, said the lawmakers have made it clear that exploring the situation is a priority.

“People are very concerned about access to critical financial services and the unintended consequences of bank secrecy and money laundering regulations,” Evans said. “The problem could rise to the level of needing a legislative solution.”

San Diego City Councilman David Alvarez met last month with federal officials in Washington, D.C., and said last week that he came away pleased with their approach.

“It was very encouraging to me that there’s interest in this topic on a bipartisan level,” said Alvarez, whose district includes San Ysidro and Otay Mesa. “They will be talking to not only businesses but customers who might be impacted by the closure of banks.”

He said the branch closures have been particularly hard on small businesses, forcing some to travel many miles to conduct rudimentary transactions.

“A national corporate entity can probably deal with a lack of banks a lot easier, but a small mom-and-pop shop needs to have access to a local bank to prosper,” Alvarez said.

In addition, transactions at businesses along the border are more likely to be cash-based, making banks more crucial to commerce than in other neighborhoods.

Ironically, it’s all that use of cash that may be prompting branches to close because of a recent federal crackdown on money laundering from drug dealing and possible terrorism.

Alvarez said he’ll be particularly interested to see the proposed solutions, which are expected to be unveiled next summer, and whether they modify laws against money-laundering.

“Maybe if there’s some loosening of those rules, we can have some more community-focused banking geared to the type of activity that occurs along the border,” he said. “This kind of economic activity is so vital to the communities of San Ysidro and Otay Mesa.”

Rowe, the banking official, said he doubts money laundering is leading to branch closures.

“Clearly the enforcement action and the attention that’s being paid to money laundering issues is something that banks are sensitive to, and it’s a cost they have to take into account,” he said. “But bankers have told me it’s not affecting branch closures. It may be affecting account closures, but now whole branches.”

But he said even account closures aren’t taken lightly, and typically happen only when there are strong reasons to be suspicious.

“If a customer is being evasive about direct questions, you start to think twice,” Rowe said. “If the bank asks ‘why are all these wires being sent to Saudi Arabia’ and the customer won’t answer.”

The investigators will also explore banks becoming more reluctant to handle transactions requested by small wire transfer companies, and how that’s affecting the ability of people working near the border to send money home.

Rowe said new federal regulations for wire transfers have made them harder for banks.

“We have to know where the money is going and we have to know everything about the customer,” he said. “The banks have to be sure it doesn’t get into the hands of terrorists. If there is a lack of transparency, they feel uncomfortable with the transaction because they are held responsible.”

In addition to changes on money-laundering, potential solutions could include incentives for banks to open branches near the border, Evans said.

Rowe said that could be a viable option, noting that New York City successfully used that approach to spur the opening of branches in blighted neighborhoods.

“It would be the kind of thing they’d have to explore, but I think the banks would be open to it,” Rowe said.

Evans said his team would include financial analysts and other officials.

“I wouldn’t expect to see a heavy presence, but a handful of folks who are highly competent,” he said.

david.garrick@sduniontribune.com (619) 269-8906 Twitter:@UTDavidGarrick

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