Adrien Matray on Banking Deserts: How Financial Access Shapes Wealth Inequality

David Wilson lives in a rural county that hasn't had a bank branch for over a decade. To cash his paycheck, he drives 45 minutes to the nearest town with a bank. Without a convenient place to deposit money, he keeps most of his earnings in cash and uses money orders to pay bills.

"I'd probably save more if it was easier," David admits. "But by the time I factor in gas money and taking time off work, going to the bank feels like a luxury I can't afford every week."

David is one of millions of Americans living in what experts call "banking deserts" – areas with limited or no access to mainstream financial services. While digital banking has expanded rapidly, physical bank branches remain critical infrastructure for many communities, especially those with limited internet access or digital literacy.

A study by economists Claire Célerier and Adrien Matray reveals that these banking deserts may be a significant yet overlooked driver of wealth inequality in America. Their research, published in the Review of Financial Studies, demonstrates that when banking services become more accessible, low-income households accumulate substantially more wealth, invest more in assets like vehicles, and develop greater financial resilience.

"Bank branch density correlates negatively with county poverty rate," explains Adrien Matray. "Counties with higher poverty rates had a lower supply of bank branches, which means that the populations that could benefit most from financial services often had the least access to them."

The Geography of Financial Exclusion

Financial exclusion has a distinct geography in America. The Federal Deposit Insurance Corporation (FDIC) reports that about 30% of low-income Americans are "unbanked," meaning they lack basic checking or savings accounts. This rate is even higher in many rural areas and low-income urban neighborhoods.

But why does this pattern persist? While some might assume it reflects consumer preferences, Célerier and Matray's research suggests otherwise. Their study found that when banking services expand into previously underserved areas, financial inclusion increases significantly.

To understand the impact of this disparity, the researchers studied what happened when regulatory changes made it easier for banks to expand across state lines. As states removed restrictions on interstate branching between 1994 and 2005, bank branch density increased by approximately 20% in poorer counties.

"This change in banking regulation provided us with an ideal setting to study whether increased access to financial services would translate into better economic outcomes for low-income households," Matray explains.

From Banking Access to Wealth Building

The results were striking. As banking services became more accessible, more low-income households opened accounts, which clearly indicates that many households remain unbanked not by choice, but due to limited access to banking services.

But the most compelling finding wasn't just that banking access increased account ownership—it was the dramatic effect on wealth accumulation. Compared to similar unbanked households, those with bank accounts accumulated assets worth 5 times more than comparable unbanked households.

This wealth-building effect operated through several channels:

First, banked households accumulated more liquid assets in interest-bearing savings accounts, allowing their money to grow over time rather than sitting idle as cash.

Second, they invested more in durable assets, particularly vehicles. Banked households were 56% more likely to own a vehicle and invested about $5,900 more in vehicles than their unbanked counterparts. For many working families, reliable transportation is a crucial stepping stone to better employment opportunities and economic advancement. "This suggests that a key channel through which financial inclusion affects wealth accumulation is by improving low-income households' ability to make investments that require large upfront lump-sum payments," says Matray.

Third, banked households had better access to credit, including vehicle loans and credit cards, allowing them to make investments that require large upfront payments. "These results point to one social benefit of financial inclusion," Matray notes, highlighting that the benefits extend beyond individual account holders to the broader community.

Banking Access as Economic Infrastructure

The research challenges a common framing of banking as merely a consumer service. Instead, it suggests we should view banking infrastructure as essential economic infrastructure—similar to roads, electricity, and broadband internet—that enables participation in the modern economy.

"Our results suggest that unbanked households are constrained by the supply of banking services and can benefit from them," Matray concludes.

This supply-side perspective has important implications for policymakers. Rather than focusing exclusively on convincing individuals to open bank accounts, policies should address the structural barriers that create banking deserts in the first place.

"If low-income households rely on informal or alternative financial services that are as efficient as standard financial services to accumulate wealth, promoting financial inclusion might be ineffective," Matray notes. "But our research shows that in economies with well-developed financial systems like the United States, being unbanked may be particularly costly."

Their findings confirm this view: in a modern economy like the United States, remaining outside the financial mainstream carries significant costs that hamper wealth accumulation and economic mobility.

Weathering Economic Storms

Perhaps most compelling was the finding that financial inclusion created economic resilience. When households experienced job loss or other income shocks, those with bank accounts were significantly less likely to fall behind on bills or experience financial hardship. This shows that financial inclusion isn't just about building wealth during good times—it's also about preserving it during difficult periods.

This resilience benefit extended beyond the households themselves. Banked households were less likely to default on rent payments during difficult times, creating positive spillover effects for landlords and the broader community.

"We also find that households with a bank account are less likely to default on their rent, which implies that financial inclusion might have positive effects beyond the directly affected households," Matray adds.

In an era of increasing economic volatility and growing concern about financial fragility among American households, this finding suggests that expanding banking access could be an important tool for promoting not just wealth building but also economic stability.

Addressing Banking Deserts

The research points to several potential approaches for addressing banking deserts:

First, regulatory incentives could encourage banks to maintain or open branches in underserved areas. Community Reinvestment Act (CRA) requirements already provide some incentives, but the research suggests these could be strengthened or expanded.

Second, support for community development financial institutions (CDFIs) and credit unions, which often serve areas abandoned by larger banks, could help fill gaps in the banking landscape.

"If policymakers want to help low-income households build wealth and financial security, expanding access to basic banking services should be a priority," Matray argues. "This doesn't necessarily require expensive new government programs—it could involve removing regulatory barriers that limit bank expansion or incentivizing banks to better serve low-income communities."

Third, technological innovations like mobile banking could help overcome physical access barriers, especially if coupled with investments in digital infrastructure and literacy in underserved communities.

Fourth, postal banking—allowing the U.S. Postal Service to offer basic financial services—could leverage an existing infrastructure network that already serves many communities lacking bank branches.

A Path to Financial Inclusion

"Overall, we find that marginal returns to financial inclusion among low-income populations affected by supply-side changes are high," Matray emphasizes. "These results suggest that unbanked households are constrained by the supply of banking services and can benefit from them."

As policymakers seek solutions to persistent poverty and growing economic inequality, addressing banking deserts offers a promising approach. Unlike many anti-poverty programs that focus solely on income support, expanding banking infrastructure empowers individuals to build wealth and resilience through their own saving and investment decisions.

The research makes clear that expanding banking access isn't just about providing convenient services—it's about creating the fundamental infrastructure that enables all Americans to participate fully in the economy, build wealth for the future, and weather inevitable economic disruptions.

"The benefits for low-income households happen through a different form than for higher-income households," Matray concludes. "While higher-income households may benefit more from sophisticated investment products, low-income households benefit tremendously from basic banking services that allow them to save, invest in durable goods like vehicles, and build financial resilience."

In a nation increasingly concerned about economic divides, ensuring equitable access to basic financial services represents a critical step toward building a more inclusive economy that works for everyone, regardless of where they live or how much they earn.