The Loss of Rural America, It’s Not Good


72% of United States’ land area belongs to rural counties, but in 2014, just 46.2 million Americans (roughly 15% of the population of the country at the time) lived in these areas.

The above facts give some explanation to this story from the Wall Street Journal:

“The financial fabric of rural America is fraying. Even as lending revives around cities, it is drying up in small communities. In-person banking, crucial to many small businesses, is disappearing as banks consolidate and close rural branches. Bigger banks have been swallowing community banks and gravitating toward the business of making larger loans.

“The decline of community banks has disproportionately affected rural U.S. counties, where relationship banking plays an outsize role. There are now 625 rural counties without a community bank based in the county.

“Distant banks with few ties to local communities—which often rely heavily on algorithms to gauge creditworthiness—are also less likely to have the personal relationships that have helped local bankers judge which borrowers were a good bet.

“The phenomenon, almost automatically, is getting worse. Bankers say they don’t see enough business in small towns. Small towns say bank closings make it harder to do business.”

I grew up in a small, rural town, a farm town of around 5,000. But within a dozen miles from our small town was a larger town of over 100,000. We lived in the Central Valley of California, basically in the center of the San Juaquin valley that went from Bakersfield to the south to Stockton/Sacramento in the north, towns that were large in population. The large town near us was the largest town in the Central Valley, all other towns were our size or no more than 20,000. The Valley is all about farming. Our town had the advantage of living near this larger town. All the other towns in the Valley didn’t. I learned better what this meant when my family moved to the Central Coast to a small town with no large towns near it, the closest one a two-hour drive away.

Farming communities will always be small because the majority of land is dedicated to farming. It’s nice living near a large town, as I learned when we move to a truly rural area with no large towns. While small communities will never have the advantages a large city gives, they were never written off by institutions like banks because the need for banks just to handle your money and offer loans is as important here as in large cities. Farmers, especially, are in need of banks for loans to carry them from year to year, to purchase new equipment, and to expand. Banks in small rural communities will never become large worth tons of money.

What this article in the WSJ leaves out (and the story can be found HERE) is that everyone, including the bank, in these small communities, was all about helping people, not getting rich. It wasn’t that farmers or merchants didn’t want to grow their business and make more money each year than the year before, most were happy making a good living rather than driven to making a super-rich living. Helping out were the banks in this dream of making a good living. Now, as this article shows, banks are abandoning rural communities. We read this fact in the story: “The decline of community banks has disproportionately affected rural U.S. counties, where relationship banking plays an outsize role. There are now 625 rural counties without a community bank based in the county.”

What’s happening? “The value of small loans to businesses in rural U.S. communities peaked in 2004 and is less than half what it was then in the same communities, when adjusted for inflation, according to a Wall Street Journal analysis of Community Reinvestment Act data. In big cities, small loans to businesses fell only a quarter during the same period, mainly due to large declines in lending activity during the financial crisis. Adjusted for inflation, rural lending is below 1996 levels.” . . . “As the U.S. population continues to move to larger population centers,” a Bank of America spokesman says, “we want to insure that our branch coverage matches where people are moving.”

While the rural land mass hasn’t change so much, populations have as more are moving out of rural communities into bloated cities, or in the case of California my home town says it all, that 5,000 population when I was growing up now has expanded to over 100,000 and the farming land has been changed out for houses. Here are some tragic facts for we Californians, and actually the rest of the U.S. as we were the bread basket for the nation:

  • Farm and Grazing lands in California decreased by more than 1.4 million acres between 1984 and 2010.
  • The type of farmland with the largest decrease has been Prime Farmland, the best soils for agricultural production.  Prime Farmland losses were just under 662,000 acres between 1984 and 2010
  • Urbanization accounts for the vast majority of this loss, nearly 1.1 million acres over the 1984-2010 timeframe.

The ranch I spent part of my childhood on, the ranches where I worked as a kid, are now in houses.

It’s not profitable to be a small rural community. It’s become so expensive to farm that small farms are losing out to large farms. This makes it harder for retail to make it so they are leaving, including banks as this story chronicles. And since the economic crisis of 2008, beginning with President Bush and continued under President Obama, the cost of doing business as a bank because of new regulations making it harder and more expensive for a bank to survive, profit can only be found in the larger communities, not the smaller ones, so off they go.

Change will always happen, but not all change is good. The loss of farming and ranching in California is costing California tons of money and making taxes higher to cover this loss hurting us all. We really do need to think about the importance of rural communities and what we can do to preserve it.