Neighborhood racial and ethnic composition significantly affects the distribution of financial services

As banks are less accessible in low-poverty, college-educated, and minority homeowner neighborhoods, minorities are forced to rely on often-predatory alternative financial institutions (AFIs). 

Reviewed by Sakshee Chawla


Racial inequality research finds that the ecology of a city, or the spatial distribution of people and resources across neighborhoods, contributes to unequal life outcomes across communities. Living in a high-poverty and minority neighborhood influences one’s access to resources such as high-quality grocery stores, highly resourced schools, or conventional banks. As access to conventional banking systems is critical for upward mobility and financial welfare, the authors examine whether the relative scarcity of conventional banks in high-poverty and minority neighborhoods disadvantages certain racial, ethnic, and socio-economic groups by increasing reliance on often-predatory alternative financial institutions (AFIs). 

Small et al. differentiate this research by measuring conventional bank accessibility by the travel time to brick-and-mortar banks, relative to AFIs, across every block in 19 of the largest cities in the United States. Prior research on this topic has used zip code as a measure of accessibility, which does not account for barriers to access such as the ecological configuration of a space, public transportation challenges, or traffic. Prior research has also been limited to a few cities and has not compared the accessibility of AFIs and traditional banks. 

Dr. Mario L. Small, a Grafstein Family Professor at Harvard University, studies urban poverty and personal networks. He serves on the American Academy of Arts and Sciences, the American Academy of Political and Social Sciences, and the Sociological Research Association. In addition to a part-time faculty at Northeastern University, Armin Akhavan is city and regional planner, spatial analyst, and information design and visualization specialist. Mo Torres studies inequality and urban politics as a PhD candidate in Sociology, Stone PhD Scholar in the Multidisciplinary Program in Inequality and Social Policy, and Democracy Doctoral Fellow at the Ash Center for Democratic Governance at Harvard University. Qi “Ryan” Wang is the Assistant Professor of Civil and Environmental Engineering at Northeastern University where his research focuses on urban and social resilience, urban computing, and geo-social networking.

Methods and Findings

Using more than six million queries, the authors compared travel times from the nearest brick-and-mortar bank to the travel time to AFIs in every block of the 19 largest cities in the United States. To account for traffic, congestion, and other factors that influence accessibility, the authors compared times by car, public transportation, and foot. The authors excluded data from ATMs located outside of banks such as grocery stores and liquor stores for two reasons: (i) ATMs require an individual to already have a bank account and card, and (ii) a stand-alone ATM outside a bank does not provide all financial services offered at a brick-and-mortar bank or AFI. 

In the 19 cities analyzed in the study, the number of banks exceeded the number of AFIs. The authors calculated the probability that an AFI is more accessible than a bank for groups with varying racial and ethnic groups as well as class or poverty level compositions. The authors emphasize this analysis as descriptive and not causal. These analyses found that within racial groups, the probability that an AFI was closer than a bank was greater in neighborhoods with a low-income, unemployed, and low-education renter composition than in high-income, employed, and high-education homeowning neighborhoods. However, these analyses also revealed that the presence of AFIs in a geographic area increase with the proportion of a minority group in a neighborhood, regardless of the poverty levels in a neighborhood. 

In a statistical analysis of the extreme ends of the spectrums, the study finds that the probability that an AFI is closer than a conventional bank by foot, public transit, or car is still significantly higher in affluent, home-owning Black neighborhoods than in economically disadvantaged, white renter neighborhoods. This finding indicates that race is more important than class in predicting the distribution of financial services across neighborhoods. Further, the study also finds these differences are not driven by a lack of banks, but instead by an increased proportion of AFIs in minority neighborhoods.


This study builds on the extensive literature on the role of financial institutions in creating and perpetuating racial disparities in wealth. The authors believe that the existing extensive body of work on financial institutions, banking, redlining, and other structural conditions should guide future work on the spatial distribution of financial institutions to determine if these differences reflect inefficiencies in the market, or are also associated with racial and ethnic differences in preferences for banks or AFIs. Future research should also examine how decision-making related to banking and social inequality is influenced by trade-offs between the quality and proximity of financial institutions. 

Policy interventions should incentivize banks to meet the credit needs of all communities since the disparities were driven by the prevalence of AFIs in minority areas, rather than by the absence of banks in these areas. Banks should be encouraged to meet the needs of minority and low-income neighborhoods or restrict AFI locations so policymakers can assess the causal effect of such interventions.

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