Can Banks Lower Crime Rates (and Increase Home Values)?

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Sure, police patrols and neighborhood watch groups help fight crime, but what about financial institutions? A new study out of the University of Virginia studied crime stats in several low-income, Latino neighborhoods in Virginia and North Carolina before and after credit unions targeting a Spanish-speaking customer base opened there. Following the establishment of the credit unions, robberies dropped.

In North Carolina counties where the Latino Credit Union opened branches, the number of overall robberies dropped by an average of 4.2 percent, county-wide; when researchers looked at individual neighborhoods and crimes targeting Latinos, the numbers were even more pronounced. In Charlotte, N.C., armed robberies against Latinos fell by 22.6 percent.

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“The effect of the Latino Credit Union was statistically significant in its magnitude,” says research director and co-author Kulwant Rai, who adds that he controlled for other factors that might have contributed to a decrease in robberies. Rai says the results of the research have implications for other places, too: “From the circumstantial evidence I have, I feel there’s a good chance the results would be the same in other parts of the country.”

The link connecting neighborhood banks and credit unions with crime rates might not seem intuitive, but it makes some sense: Members of unbanked households are far more likely to store large amounts of cash in their homes or carry it with them, making them vulnerable to robberies and related crimes.

Rai’s research also showed that the drop in robberies that transpired after mainstream banking became available in low-income Latino neighborhoods raised the values of the homes in those areas. In North Carolina alone, he calculates that the presence of credit unions contributed to an increase of $9.8 billion in total property values.

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Unfortunately, an investigation by the New York Times conducted earlier this year shows that financial institutions are pulling out of poor neighborhoods rather than adding branches. From the article:

In low-income areas, where the median household income was below $25,000, and in moderate-income areas, where the medium household income was between $25,000 and $50,000, the number of branches declined by 396 between 2008 and 2010. In neighborhoods where household income was above $100,000, by contrast, 82 branches were added during the same period.

Rai says financial institutions frequently underestimate the value unbanked Americans can bring to their businesses, saying they need to educate themselves about these underserved populations and learn how to engage them. “When they go to the bank branches, they don’t feel very welcome,” he says of the Latino consumers who were the focus of his research.

These populations may, in turn, need a greater degree of education about the benefits of opening a checking or savings account; in many cases, a language barrier creates a hurdle. Rai suggests banks and credit unions employ bilingual employees to communicate with consumers and help them with paperwork they might not be able to read. “If you fix this discomfort, you can be successful,” he says.

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