The Disparate Impacts of the 2023 Regional Banking Crisis

This study considers how the 2023 regional banking crisis and subsequent regulatory responses have affected access to financial services among historically underserved and excluded demographics. Through a survey distributed to 1,500 minority business owners, the study investigates how access to banking services has shifted following the 2023 regional banking crisis, in which the failures of Silicon Valley Bank (SVB), Signature Bank, and First Republic led to bank consolidations and lending pullbacks. The article frames these dynamics within the context of recent legislative actions around banking consolidation and the loosening of capital controls enacted in 2025. The findings aim to contribute to the ongoing discourse on financial regulation and offer insights into the evolving landscape of regional and community banking sectors.

1. Introduction

Regional and community banks play a significant role in providing community-level financial services access. In contrast to national banks, smaller banks provide more concentrated services, which results in enhanced credit access for local enterprises such as small businesses. Despite this, the banking industry has been under considerable stress in recent years, contributing to a decline in smaller lending institutions. According to the Federal Deposit Insurance Corporation’s Small Business Lending Survey, the number of “small banks” (defined as banks with less than US $10 billion in assets) declined by almost 46 percent between 2008 and 2023. The U.S. economy has recently experienced a series of rapid and unanticipated economic shocks that have further amplified challenges for lenders.

During the COVID-19 pandemic, the U.S. government developed a series of stimulus programs aimed at driving economic activity. These policies emerged at a time of considerable ambiguity related to the duration and prospective disruption that the pandemic would have on the broader economy. However, given the relatively low mortality rate of the COVID-19 virus in congruence with rapid medical innovations, lockdown restrictions were overhauled within 18 months (Ahmad, Cisewski, Xu, and Anderson, 2023). As a result of economic stimulus packages, the conclusion of lockdowns, and factors such as ongoing supply chain disruptions, significant supply-side constraints emerged that ultimately culminated in artificial price elasticity (U.S. House Committee on the Budget, 2024). Given that interest rates had remained depressed throughout the pandemic, the shift and onset of hawkish monetary policy was rapid, meaning that many financial institutions had balance sheets that were ill-prepared for these volatile and rapidly evolving economic conditions.

These structural challenges left some institutions overly exposed to interest rate risk, leading some institutions to shutter. These events have been labeled as the 2023 regional banking crisis (FDIC, 2023a). The crisis marked a significant destabilizing event in the financial services sector, prompting rapid regulatory responses to prevent further economic disruption. Policymakers attempted to adopt measures to restore stability. One such measure was the endorsement of bank consolidations, which allowed larger institutions to absorb their struggling regional counterparts. The regulatory decision to allow for the rapid merger and absorption of market participants by larger and more stable institutions was motivated by a desire to secure customer deposits (FDIC, 2023b).

Ultimately, the events of the regional banking crisis led policymakers to prioritize short-term economic stability over the preservation of a competitive banking landscape. Though this action successfully stabilized the sector, the reliance on consolidation as a primary response to address systemic instability introduces new risks that have fundamentally altered the banking industry.

Prior to 2023 there was already an accelerated rate of bank closures, disproportionately impacting rural and Low- or Moderate-Income (LMI) communities. This trend was already alarmingly pronounced prior to the onset of the regional banking crisis. For example, according to a report published by the Federal Reserve, which identified 44 counties that had ten or fewer bank branches in 2012. By 2017, only half of the banks in these communities were still in operation (Board of Governors of the Federal Reserve System, 2019). These challenges are further supported by research conducted by the National Community Reinvestment Coalition, highlighting how LMI and rural areas have experienced a significant contraction of branches. Since the 2008 financial crisis, many smaller banks have been absorbed by larger institutions, which often prioritize profitable urban markets. As a result, rural and LMI communities are more likely to become “banking deserts” or areas where residents face limited access to financial services (Richardson, Mitchell, Franco, and Xu, 2017).

This disparity exacerbates financial exclusion, as populations in rural and LMI communities are more likely to depend on in-person services due to lower access to digital banking technologies and broadband internet. A 2019 Federal Reserve study found that while alternatives such as private ATMs and prepaid cards provide limited substitutes for traditional banking, they come with high fees and limited functionality, such as the inability to deposit cash. Additionally, broadband and cellular service limitations make online or mobile banking impractical for many individuals, particularly those with limited digital literacy. The study underscores how branch closures disproportionately impact existing, underserved populations (Board of Governors of the Federal Reserve System, 2019).

The American South, particularly the Gulf Coast region, presents a compelling case study for examining these dynamics. Alabama, where the majority of this study’s survey respondents operate, has historically exhibited acute patterns of financial exclusion among minority populations. According to the Federal Deposit Insurance Corporation’s (hereafter referred to as the FDIC) 2021 Survey of Household Use of Banking and Financial Services, Alabama ranked among the top ten states for unbanked households, with rates significantly higher among Black and Hispanic residents. The state’s banking landscape has undergone substantial consolidation in recent decades, with the number of community banks declining by over 35% since 2010. During the 2023 regional banking crisis, while Alabama’s banks largely avoided direct failures, the broader credit tightening and risk aversion that followed the collapse of Silicon Valley Bank (SVB) and Signature Bank rippled through regional lending markets, affecting small business credit availability across the Gulf Coast. This geographic concentration allows for focused analysis of how national banking disruptions translate into localized impacts on minority entrepreneurs who already navigate a financial landscape shaped by historical exclusion and limited institutional presence.

The central research question of this study considers these events and seeks to understand how historically underbanked minorities have been affected by recent policy actions. Specifically, minority entrepreneurs and small business owners already face substantial challenges in accessing critical financial services, given that their historical exclusion from the financial system has contributed to inequalities in financial services access. For example, a 2023 study by Brigham Young University, Utah State University, and Rutgers has produced research that reveals persistent racial bias in financial lending institutions. In the study, among sole proprietorships (the simplest business structure), loan approval rates for Black entrepreneurs were less than half that of White entrepreneurs (26% vs. 60%) (Scott et al. 598). Ultimately, the findings of this study aim to provide insight into the broader implications of banking access for minority-owned businesses following the regional banking crisis.

2. Literature Review

Understanding minority business financial exclusion requires examining four interconnected conceptual domains. First, the persistent patterns of historical and contemporary financial exclusion reveal how systemic barriers continue to shape minority entrepreneurs’ access to capital. Second, the theoretical and empirical limitations of current antitrust frameworks, particularly the reliance on the Herfindahl-Hirschman Index (HHI), fail to capture the true competitive effects of bank consolidation on underserved communities. Third, relationship lending and ‘soft information’ processing emerge as critical mechanisms through which community banks serve populations that algorithmic credit assessment systematically disadvantages. Finally, the 2023 regional banking crisis represents a potential inflection point where these structural vulnerabilities converged, accelerating consolidation trends that disproportionately affect minority business credit access. This review synthesizes research across these domains to establish the conceptual foundation for the present study.

2.1 Historical and Contemporary Patterns of Minority Financial Exclusion

The relationship between minority communities and the American banking system has been shaped by decades of systematic exclusion that continues to manifest in contemporary lending disparities. Baradaran’s (2017) seminal work, The Color of Money: Black Banks and the Racial Wealth Gap, traces how legal segregation and discriminatory lending created parallel, unequitable financial systems that persist today. Even after landmark legislation such as the Equal Credit Opportunity Act (1974) and the Community Reinvestment Act (1977), structural barriers remain embedded in seemingly race-neutral practices that produce disparate impacts.

Contemporary evidence confirms these persistent disparities. Bone et al. (2019) examine how “systemic restricted choice” in financial services constrains minority consumers’ economic agency and identity construction. Their qualitative research reveals that limited banking options force minority entrepreneurs into suboptimal financial relationships, creating a “rejection, shackled, and alone” experience that extends beyond mere economic disadvantage to affect psychological well-being and business confidence. This psychological dimension is crucial for understanding why minority businesses may be less likely to seek credit even when objectively qualified.

Fairlie and Robb (2022) provide quantitative evidence of these disparities in Race and Entrepreneurial Success: Black-, Asian-, and White-Owned Businesses in the United States, demonstrating that differences in access to startup capital explain a substantial portion of racial gaps in business ownership rates and firm survival. Their analysis reveals that personal and family wealth plays a determinative role in entrepreneurial success, creating intergenerational transmission of disadvantage. The Federal Reserve’s 2023 Small Business Credit Survey reinforces these findings, documenting that minority-owned firms experience loan approval rates of just 18% compared to 35% for non-minority firms, even after controlling for creditworthiness indicators.

2.2 Bank Consolidation and Antitrust Policy: The Failure of Traditional Metrics

The banking industry’s increasing concentration has profound implications for minority business access to credit, yet relaxed enforcement of anti-trust policy during proposed consolidations has had anti-competitive effects on the market. The current banking landscape can be understood through the HHI, which measures market concentration but fails to account for crucial competitive dynamics.

2.2.1 Understanding the HHI and Its Limitations

The HHI calculates market concentration by summing the squared market shares of all firms in a market, with values ranging from near zero (perfect competition) to 10,000 (monopoly). The Department of Justice guidelines classify markets as:

• Unconcentrated: HHI below 1,500
• Moderately concentrated: HHI between 1,500 and 2,500
• Highly concentrated: HHI above 2,500

In highly concentrated markets, mergers that increase HHI by more than 200 points are presumed to enhance market power and should face regulatory scrutiny. However, by 2017, the U.S. banking industry’s HHI had already exceeded 3,400, yet regulators continued approving mergers, particularly during the 2023 crisis (Federal Reserve Bank of St. Louis, 2018).

Benson et al. (2023) expose a critical flaw in HHI-based enforcement through their analysis of geographic proximity in bank mergers. Their study, “Concentration and Geographic Proximity in Antitrust Policy: Evidence from Bank Mergers,” demonstrates that when merging banks have geographically proximate branch networks, the anti-competitive effects are substantially greater than HHI alone would predict. Using a difference-in-differences strategy across over 10,000 bank mergers in four decades, they find that proximity-based competition loss leads to higher prices and reduced credit availability that disproportionately affects small businesses.

This measurement failure has particular relevance for minority businesses. As the authors note, HHI assumes customers can easily switch between all banks in a market, but minority businesses often face additional barriers such as discrimination and a lack of existing relationships which make switching costs prohibitively high. The inadequacy of HHI-based enforcement thus allows mergers that may appear competitively neutral in aggregate but devastate credit access in specific communities.

The literature on antitrust modernization, including work by Scott Morton et al. (2019) calling for updated regulatory tools, has gained urgency following the 2023 crisis. Despite the Biden Administration’s initial emphasis on maintaining competitive markets, the extraordinary circumstances of the regional banking failures led regulators to abandon even these inadequate guidelines, approving consolidations that further concentrated an already highly concentrated industry. This regulatory forbearance in crisis periods creates a ratchet effect where temporary stability measures become permanent market structure changes.

2.3 Community Banking: The Irreplaceable Role of Relationship Lending

The decline of community banks institutions with less than $10 billion in assets represents a fundamental threat to minority business credit access that technology and large bank initiatives have failed to adequately address. The mechanisms through which community banks serve underserved populations differ qualitatively from the standardized approaches of larger institutions.

Minton et al.’s (2024) working paper, “Is the Decline in the Number of Community Banks Detrimental to Community Economic Development?” provides crucial evidence on these mechanisms. Their analysis reveals that the correlation between community bank presence and small business lending persists even after controlling for the total number of bank branches in an area, suggesting that community banks provide unique value beyond mere physical presence. The authors identify several channels through which this value operates. Community banks excel at processing “soft information” which are qualitative assessments based on local knowledge, and relationship history that cannot be easily quantified or transmitted up organizational hierarchies. For minority businesses that may lack extensive credit histories or collateral but possess strong community ties and reputation, this soft information processing is essential. The authors find that when community banks are acquired by larger institutions, small business lending in the area decreases by an average of 13%, with the decline concentrated among the smallest and newest firms. Community banks also provide what the authors term ‘patient capital’ which are credit relationships that persist through business cycles and temporary setbacks. Their analysis of lending through the COVID-19 pandemic shows community banks were 40% more likely to maintain credit lines for struggling small businesses compared to large banks, even controlling for borrower characteristics. This patience is particularly valuable for minority businesses that may face more volatile cash flows due to customer base concentration or supply chain positioning.

The technological disruption narrative, that fintech and digital banking will democratize credit access, receives important qualification in this literature. While fintech lending has grown rapidly, Minton et al. demonstrate it primarily serves businesses that already have access to traditional credit, functioning more as a complement than a substitute for relationship banking. For the ‘credit invisible’ minority businesses lacking algorithmic markers of creditworthiness, fintech’s promise remains largely unrealized.

2.4 The 2023 Regional Banking Crisis: Accelerating Structural Disadvantages

The failures of Silicon Valley Bank, Signature Bank, and First Republic Bank in March 2023 created a critical juncture that accelerated pre-existing trends harmful to minority business credit access. Unlike the 2008 financial crisis’s systemic mortgage-related failures, the 2023 crisis stemmed from traditional asset-liability mismatches exposed by rapid interest rate increases, yet the policy response which facilitated consolidation may prove equally transformative for market structure.

The crisis particularly affected regional banks ($10-100 billion in assets) that occupied a middle ground between community banks’ relationship orientation and national banks’ standardized approaches. These institutions had increasingly served minority businesses that had outgrown community bank relationships but couldn’t access large bank credit. Their absorption by national banks eliminates this intermediate option, forcing minority businesses into a binary choice between scarce community banks and inaccessible large banks.

The Federal Reserve Bank of Richmond’s (2023) analysis documents that 68% of regional banks’ small business loan portfolios consisted of loans between $100,000 and $1 million, precisely the range most needed by established minority small businesses seeking growth capital. The concentration of these loans in failed or merged institutions suggests a structural gap in the post-crisis banking landscape that neither community banks (lacking capacity) nor large banks (lacking interest) are positioned to fill.

Moreover, the crisis response’s speed prevented normal due diligence on community impact. The FDIC’s emergency auctions of failed banks prioritized bid size and acquirer stability over commitments to maintain small business lending or serve minority communities. Historical analysis by Nguyen (2019) of similar emergency bank sales shows that acquiring institutions reduce small business lending by an average of 20% within two years, with the steepest declines in minority-majority census tracts.

2.5 Synthesis

The literature reveals a troubling convergence of forces affecting minority business financial access. Historical discrimination created wealth and credit gaps that make minority businesses particularly dependent on relationship lending and soft information processing. Simultaneously, bank consolidation eliminates the community banks best positioned to provide such lending. While technology promises alternatives, evidence suggests fintech primarily serves already-banked populations. The 2023 crisis represents not merely another step in ongoing consolidation but potentially a tipping point where the diversity of institutional forms necessary for inclusive credit markets falls below critical thresholds.

This study contributes to addressing several gaps in this literature. First, while studies document disparate impacts of banking changes on minority communities, few examine these effects in real-time during crisis periods when policy interventions are still possible. Second, the intersection of multiple disadvantage dimensions (race, gender, rural location) remains underexplored, particularly regarding how these intersections affect vulnerability to banking sector changes. Third, the specific mechanisms through which crisis-induced consolidation affects minority businesses require empirical investigation. Finally, the existing literature lacks evidence from minority business owners themselves about their experiences navigating banking sector disruption, relying instead on administrative data that may miss important qualitative dimensions of financial exclusion.

By surveying minority business owners in the Gulf Coast region during the immediate aftermath of the 2023 crisis, this study provides timely evidence on these questions. The findings contribute to policy debates about financial inclusion, antitrust enforcement, and the appropriate balance between stability and competition in banking regulation.

3. Underbanking Survey and Response Analysis

The observations used for data analysis were collected through a survey distributed to 1,500 minority entrepreneurs who work with community groups that connect entrepreneurs with minority businesses across the American Gulf Region. The survey was designed to capture entrepreneurs’ experiences and challenges, particularly regarding their access to financial services following the regional banking crisis.

3.1 Survey Respondent Characteristics

The survey was developed in collaboration with senior faculty at the Murphy Institute at Tulane University and distributed to 1,500 minority participants in Q3 2024, approximately 15 months after the regional banking crisis. Follow-up reminders were sent two weeks after initial distribution. Of the 1,500 surveys distributed, the survey yielded a response rate of 1%. While this response rate limits the statistical power of quantitative analyses, the respondents provided detailed qualitative information that offers valuable insights into minority entrepreneurs’ banking experiences. The low response rate is acknowledged as a limitation and is addressed in the methodological limitations section.

The geographic distribution of survey responses showed a strong concentration in the Gulf Coast region, with the majority originating from Alabama. More specifically, 64.3% of respondents reported operating enterprises in the Mobile Metropolitan Area. The remaining responses came from other Gulf Coast locations, including Gulfport, Mississippi, and Metairie, Louisiana.

The demographic composition of respondents is aligned with the study’s target population, as 78.5% of participants self-identified as belonging to underbanked minority groups. This identification encompassed various categories: racial minority status, gender minority status, economic disadvantage, rural or geographic isolation, immigrant or refugee status, and limited access to traditional financial services. Overall, 42.8% of respondents face intersectional underbanking risk. The high percentage of minority respondents suggests the survey reached its intended demographics.

3.2 Survey Response Analysis

The analysis employs multiple regression approaches to examine factors associated with changes in banking access.

3.2.1 Analytical Framework

The analysis employs multiple regression approaches to examine factors associated with banking access difficulties. The Ordinary Least Squares (OLS) linear regression model estimates the relationship between a continuous dependent variable and one or more predictors:

Y = β₀ + β₁X₁ + β₂X₂ + … + βₖXₖ + ε

Where Y is the outcome variable, β₀ is the intercept, β₁…βₖ are regression coefficients, X₁…Xₖ are predictor variables, and ε is the error term. For binary outcomes the analysis employs logistic regression models the log-odds of the outcome:

log(p / (1-p)) = β₀ + β₁X₁ + β₂X₂ + … + βₖXₖ

The probability of the outcome is plotted as:

P(Y = 1) = exp(Xβ) / (1 + exp(Xβ))

The odds ratio (OR) for each coefficient is calculated by exponentiating the coefficient:

OR = exp(β)

An OR > 1 indicates increased odds of the outcome; OR < 1 indicates decreased odds. The percentage change in odds is calculated as (OR – 1) × 100%.

3.2.2 Ordinary Least Squares Analysis

To evaluate the cross-study relationships and estimate conditional mean differences in the dependent variable as a function of specified covariates, the study employs Ordinary Least Squares (OLS) regressions. Using a linear probability specification estimates how banking exposure and proximity characteristics correlate with the probability of experiencing increased difficulty in accessing financial services.

Plotted as:

HarderAccess = β₀ + β₁(Underbanked) + β₂(BanksLeaving) + β₃(YearsOp) + ε

The linear probability model reveals two predictors that contributed to pullbacks in banking access. The first collated with Underbanked Status (β = 0.636, p = 0.014). Members of a historically underbanked community are associated with a 63.6 percentage-point increase in the probability of reporting harder access, holding other variables constant. The other predictor was Years in Operation (β = -0.013, p = 0.006). Each additional year of operation is associated with a 1.3 percentage-point decrease in the probability of reporting harder access. However, this relationship is not statistically significant. This may, however, be attributed to the limited response size. Overall, the model explains 63.5% of the variance in banking access difficulties (R² = 0.635). The overall model is statistically significant (F(3,10) = 5.787, p = 0.015), indicating that the predictors collectively explain a meaningful portion of variance.

3.2.3 Logistic Regression Model

To explore multivariable relationships, the study also employed a logistic regression model using all available banking-related predictors. Plotted as:

logit(P) = β₀ + β₁(Underbanked) + β₂(BankProx) + β₃(BanksLeaving) + β₄(Employees) + β₅(YearsOp)

However, the model displayed complete separation, meaning the predictors perfectly classified the outcome. This resulted in inflated standard errors and coefficient estimates approaching ±∞, indicating that maximum likelihood estimates are not valid under these conditions.

Complete separation is common in small sample studies and when categorical predictors contain sparsely populated categories. As a result, the logistic regression outputs are not interpretable and are not used to draw substantive conclusions.

3.3 Variable Impact Assessment

To further evaluate whether particular factors affected banking access, we examined whether years in operation and institutional banking risk had a measurable impact on business operations.

3.3.1 Years in Operation

Multiple analyses converge on years in operation as a key predictor of banking access challenges.

Businesses reporting no changes in banking access had an average of 36.5 years in operation, compared to only 7.3 years for those facing more limited access, a difference of 29.2 years. This substantial gap is statistically significant in the linear model (p = 0.006) and shows a large effect size in non-parametric analysis (r = 0.625).

3.3.2 Intersectional Risk

Intersectional risk was defined as membership in two or more historically underbanked groups. Of the 14 respondents, 6 (42.9%) were classified as having intersectional risk.

Respondents with intersectional risk reported a slightly higher prevalence of decreasing banking access (83.3%) compared to those with single underbanked status (81.8%). While the 1.5 percentage point difference is small, it suggests that intersectional risks may amplify challenges in banking access. However, the Regression analyses did not identify a statistically significant independent effect of intersectional risk on limited banking access.

3.4 Survey Results Discussion

Overall, the findings suggest that traditional indicators like the number of employees, years in operation, and banking proximity are not consistently strong indicators of prospective banking access challenges. While the results reveal trends and relationships, ultimately, there was limited statistical support in identifying any single variable that impacted banking access. However, the analysis is also limited in response size.

Additionally, hawkish monetary policy and broader macroeconomic conditions created a broader decline in loan organizations that may have contributed to a decline in banking access. Whether these trends are genuinely attributable to trends in underbanking or a reflection of the broader economic volatility and systemic shifts in the banking industry remains unclear based solely on the results of the survey and needs to be explored through further research.

In addition to these considerations, a follow-up analysis comparing minority entrepreneurs to their non-minority counterparts as a control group would yield deeper insights into the distinct challenges faced by minority-owned businesses. Such a comparative framework would help isolate the structural and financial challenges that are disproportionately affecting minority entrepreneurs. This approach would provide a more nuanced understanding of how these factors interact to constrain growth and long-term sustainability within minority enterprise ecosystems.

3.5 Methodological Limitations

The study has several limitations to consider when interpreting the results. First, the survey population consists of entrepreneurs already connected to grassroots organizations that provide business resources, such as capital, resources, and mentors. Consequently, survey respondents are inherently at lower risk of underbanking compared to minority entrepreneurs who lack access to similar resource networks. This selection bias may, therefore, underestimate the true extent of banking access challenges faced by minority entrepreneurs who do not have access to similar organizational support.

Similarly, the geographic concentration of responses, while providing deep insights into the Gulf region and American South, limits the generalizability of findings when considering external geographic concentrations. Additionally, as with all survey-based research, responses may be subject to self-reporting bias, particularly regarding sensitive financial information. Finally, the limited response rate of 1% must also be considered when evaluating the representativeness of the findings.

4. The Disparate Impacts of the Regional Banking Crisis

The varied results of the survey responses highlight a facet of a broader outcome from the regional banking crisis. Namely, the variability of impacts caused by the regional banking crisis within the banking industry. The most significant impacts of the regional banking crisis were largely isolated to lending institutions with total assets between $10 billion and $100 billion (International Monetary Fund, 2024). However, the crisis had more disparate effects across the broader banking landscape. While regional banks faced severe challenges, community and national banks remained relatively insulated. This variability is attributable to differences in institutional lending practices. Regional banks are heavily exposed to commercial real estate (CRE) and account for about 70% of all CRE loan issuance. Given the long time-to-maturity cycles, variable rate structures, and refinancing dependencies, CRE lending is particularly sensitive to interest rate risk. As a result of macroeconomic headwinds, CRE lending decreased by 47% from 2022 to 2023 (Taylor, 2024), and housing subsequently declined 16% year-over-year from July 2023 to July 2024 (U.S. Department of Housing and Urban Development, 2024). However, at the same time, business lending amongst small and medium-sized businesses saw single-to-low double-digit percentage point lending increases in the same period (Equifax Newsroom, 2024).

These trends are partially attributable to the involvement of other lending institutions. For example, in contrast to their regional counterparts, community banks, which are defined as institutions with less than $10 billion in assets, remained relatively insulated from the crisis. Most community banks originate between 11 and 50 loans annually under the 7(a) program, with the vast majority of loans ranging from $350,000 to $1 million. Furthermore, in the last year, 45% of community banks report increasing loan volumes, even amidst challenging economic conditions and a volatile interest rate environment, underscoring the potential advantage of soft information and personalized-driven lending (Granchelli, 2024). Similarly, national banks (banks with more than $100 billion in assets) are more diversified in their operations and are thus more insulated from interest rate shocks.

5. The Interplay of Minority Banking Access and Emergent Policy Dynamics

The dynamics of the 2023 regional banking crisis underscored the structural vulnerabilities and disparities in the US banking industry. While regional banks bore the brunt of due to their concentrated exposure to commercial real estate lending and interest rate volatility, community and national banks demonstrated relative resilience, driven by their localized lending models and diversified portfolios, respectively. The decision by regulators to allow regional banks to be acquired by more stable operators within the banking sector has created gaps in sectoral lending that regulators and policymakers must continue to research. And yet, despite their relative insulation, community banks continued to decline in numbers, dropping 46% from 7,620 in 2003 to 4,129 in 2023, exacerbating the emergence of banking deserts and reducing access to relationship-based lending that is vital for minority entrepreneurs and underserved populations (Beiseitov, 2023). Research from the Federal Reserve Bank of Philadelphia documents that from 2019 to 2023, banking deserts increased by 217 census tracts, affecting approximately 12.3 million Americans. Critically, majority-Black areas experienced faster rates of increase in banking deserts compared to the national average, and people living in majority Native communities were twelve times more likely to live in a banking desert in 2023 (Federal Reserve Bank of Richmond, 2024).

Meanwhile, national banks remain less engaged in localized operations, limiting options for minority entrepreneurs who rely on relationship-based credit evaluation. This gap underscores the critical importance of minority depository institutions (MDIs), which serve as essential countervailing forces against systemic lending disparities. The National Bankers Association reports that more than 60% of MDI loans go to majority-minority communities and 54% go to communities with higher poverty rates than the national rate (The Federal Reserve Bank of Chicago, 2024).

Moreover, the regulatory environment has shifted dramatically since the 2023 crisis. In 2025, the Federal Reserve approved changes to the enhanced supplementary leverage ratio, lowering it from at least 5% to between 3.5% and 4.25%, which is estimated to free up $13 billion in capital at the holding company level of the eight largest US lenders and $210 billion at their deposit-taking subsidiaries and free up nearly $2.6 trillion in lending capacity (Arnold, 2025). These measures may improve profitability for financial institutions. And while deregulation may pose relatively fewer systemic risks for community banks given their propensity for relationship-based lending, the loosening of restrictions just two years after the regional banking crisis failures has raised substantial concerns, which warrant further consideration.

This regulatory shift has also corresponded with evolving antitrust enforcement standards. Specifically in May 2025, the Office of the Comptroller (OCC)^[1] rescinded a 2024 policy statement on bank mergers and restored a streamlined application and expedited review procedures. As a result, in Q1 2025, nineteen bank merger deals worth a combined $985.5 million were announced, compared with $653.8 million over the same period in 2024 (Vinicius, 2025).

While proponents of consolidation claim that larger financial institutions can offer clients critical advantages, such as lower borrowing costs due to scale efficiencies, research has highlighted significant adverse externalities for consumers. A study analyzing the effects of bank mergers found that the distance between lenders and borrowers determines the availability and terms of credit, especially in low-income neighborhoods, and that bank branches play a fundamental role in the functioning of the banking sector despite technological advances (Ferrando et al., 2022). Additionally, customer satisfaction data indicate that large, merged institutions often sacrifice service quality, resulting in higher fees, reduced access to credit, and less responsive customer service (Powers et al., 2022).

Ultimately, the literature considered in this article has demonstrated that community-level credit access depends on the continuity of community-level operations. Legislation such as the Community Reinvestment Act (CRA) remains critical to ensuring that minority entrepreneurs and underserved communities retain access to credit. However, the regulatory trajectory of CRA modernization has also shifted since 2023. In October 2023, federal banking agencies issued a final rule, known as CRA II, to strengthen and modernize CRA regulations. Yet in February 2024, a coalition of banking and business trade groups filed suit. By March 2025, the federal government announced its intention to rescind the 2023 CRA Final Rule and replace it with the 1995 regulations (OCC, 2025). This suspension of CRA modernization, coupled with the confluence of relaxed capital controls and accelerated consolidation, threatens to accelerate the rollback of community-level operations.

For minority entrepreneurs, these trends present a compounding threat. Research has demonstrated that bank branches play a fundamental role in credit access despite technological advances, and that the distance between lenders and borrowers determines the availability and terms of credit, especially in low-income neighborhoods (Ferrando et al., 2024). There continues to be a pressing need for a nuanced regulatory approach that balances systemic stability with equitable access to financial services for all Americans.

6. Conclusion

Overall, the disparate impacts of the regional banking crisis observed in this study highlight the complex dynamics of the banking industry and underscore the need for a diversified banking industry. Addressing disparities in banking access for minority entrepreneurs requires fostering a banking system that prioritizes equitable service delivery and local economic development. Yet the confluence of factors around interest rate volatility, relaxed anti-trust enforcement and the 2025 deregulatory measures present compounding threats for community-level credit access. This study contributes to the ongoing discourse around the interplay of institutional size, regulatory responses, and lending practices, which remains an area of further research as policymakers seek to better navigate the challenges posed by systemic disruptions and ensure a more inclusive, resilient financial future for minority entrepreneurs and underserved communities.

Appendix

All variables were measured by asking participants to respond to the following questions:

1. Please Provide the Zip Code of the Community Where Your Business Operates
2. Do you identify as a member of a historically unbanked or underbanked community?

   Please Select All that Apply

   a. Yes, I identify as part of a racial minority group.

   b. Yes, I identify as part of a gender minority group.

   c. Yes, I identify as part of an economically disadvantaged community.

   d. Yes, I identify as living in a rural or geographically isolated community.

   e. Yes, I am of an immigrant or refugee status.

   f. Yes, I identify as part of a community with limited access to traditional financial services.

   g. No, I do not identify as part of a historically unbanked or underbanked community.

   h. Prefer not to answer

3. Are you aware of a bank located within a 5-minute drive (within a 1–5-mile radius) of your business? (Yes/No/Not Sure)
4. In the last 30 days, have you accessed any financial services? If yes, please specify how you accessed them (e.g., through a mobile app, in person at a bank branch, by phone, etc.).

   Please Select All that Apply

   a. Yes, through a mobile app

   b. Yes, in person at a bank branch

   c. Yes, by phone

   d. Yes, through an online banking website

   e. Yes, through an ATM

   f. Yes, through a financial advisor or broker

   g. No, I have not accessed any financial services in the last 30 days

5. Have you ever used services like payday loans or check cashing in the last year? (Yes/No)
6. Which of the following financial products/services do you currently use?

   Please Select All that Apply

   a. Business Checking Account

   b. Business Savings Account

   c. Business Credit Card

   d. Business Loan

   e. Merchant Services (Point-of-Sale Services like Square or a card processing machine)

   f. Payroll Services

   g. Does Not Apply to Me

7. Are there any financial products/services you need but do not currently have access to?  If yes, please explain
8. How did you obtain start-up capital, and/or If you need start-up capital, how did you obtain financing for your business? Please Explain
9. Please Disagree or Agree with the Following Statement: It has been harder to access financial services in the last year.
10. Please Disagree or Agree with the Following Statement: In the last 18 months, banks have started to leave my local community.
11. If you need emergency funding (money) for your business, how would you go about obtaining the funds?

    Please Select All that Apply

    a. Loan from Friends and Family

    b. Loan from an alternative lender (e.g., payday loans)

    c. A traditional loan from a bank

    d. Personal Loan

    e. Borrowing against business assets

12. How many employees do you have?
13. How many years has your business been in operation
14. Did you Found/Create your Business? (Yes/No)

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