Banking Blues On The Border

In a world filled with unintended consequences, a perfect storm of unintended consequences for the banking business is sweeping the US-Mexico border.

Nearly half the bank branches in San Ysidro have closed in the last two years, mirroring a trend along the entire Mexican border that’s creating headaches for small businesses and forcing some residents to go without bank accounts.

Bank officials say branch closures along the border are the result of a recent federal crackdown on drug-related money-laundering and an inevitable reduction in brick-and-mortar locations as more banking gets conducted online.

No one disputes that those are factors, but some question whether the banks are using such things as excuses for closing less lucrative branches in relatively low-income border areas.

Whatever the cause, politicians and community leaders 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.

Another factor cited is the paucity of new bank charters since the collapse of 2008. No new community banks are being formed by local business leaders to meet the needs of the border communities not being met by big banks.

"Most communities along borders like San Ysidro don’t have community banks — we’re at the mercy of the national chains," [San Ysidro Chamber of Commerce CEO Jason] Wells said.

The national chains are closing, not opening, branches, not only in San Ysidro, but all along the Mexican border.

As of Oct. 1, 80 percent of bank branches had closed in Calexico, 29 percent had closed in Nogales, Ariz., and in Texas 13 percent had closed in El Paso and 17 percent in Laredo.

In San Ysidro, six of the community’s 13 branches have closed.

"Derisking" a bank can be bad for business, obviously.

Among the proposed solutions being urged by business leaders are a softening of money-laundering penalties. The $1.9 billion hit that HSBC took not long ago is cited in the article as a prime motivator for the acceleration of border branch closings. Don't hold your breath on that happening. The US Justice Department and federal regulators are too busy pursuing "hate speech," payday lenders, and online dating services to seriously consider lifting its jackboot off the neck of banks in the area of BSA/AML compliance, unless your a bank that services a state-legal, federally-illegal recreational pot business, in which case, as long as you file a Cheech-and-Chong SAR, you'll likely get a wink-wink/nudge-nudge from General Lynch.

Frankly, I don't see any short-term reversal of the trend. Perhaps, if and when de novo bank charter approvals become more common, a few local banks eventually might be created to serve some of these areas. Or, Princess Fauxcohontas may eventually exhale her pipe dream of a US Post Office "Bank of the People's Republic" and morph border post office branches into border bank branches that specialize in turning cash deposits into money orders. Otherwise, I don't see an end to the trend.