Why do some banks operate regionally, someone in the north part of a state is told they can’t open an account with a bank in the south of the state.

Question

With the rise of on-line banks this may be obsolete but say the person can’t do on-line banking.

In: Economics

Answer 1

Banks are highly regulated. Specific conditions, especially at the state level, play a role here that can’t be explained in a blanket manner. But, you can assume it probably has something to do with community banking and fair lending standards. Banks are required to do a certain amount of lending in all the communities they serve. If they aren’t prepared to do lending in one part of the state, they can’t open deposit accounts there. And as easy as it might sound to just do loans wherever, there are a lot of hoops to jump through to be able to do it legally, and of course then there’s the question of whether or not it’s profitable. Remember, banks don’t make money off of your checking account. The sole purpose of offering that service is to be able to turn around and lend that money out and earn interest on it.