‘Banking deserts’ becoming a familiar problem across Canada

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As Canadian banks adapt to a growing digital landscape—often by closing branches—the transition to online meant to make banking easier and more convenient is actually making financial services less accessible to some Canadians.

Just like the closure of grocery stores has led to “food deserts” across the country, bank closures are quietly leaving wide swaths of the country without a local banking option.

The loss of a Scotiabank branch this summer has left residents of the small Ontario community of Osgoode scrambling to find a solution.

“We’re just a small village, you know, 3,500 people for the most part, but this has a big impact,” said Rob McLellan, chair of the Osgoode Village Community Association.

“This is a real challenge for some seniors. What are they going to do? Use their smartphone? A lot of them don’t even have cell phones. A lot of them don’t use email.”

Osgoode is a small-population centre in the rural south end of Ottawa. While it’s technically a part of the larger city, residents of the rural village are now 20 km away from the closest bank.

And that might not even be another Scotiabank, forcing some to either switch to another institution or travel even further to get access to their existing accounts and services.

McLellan said Scotiabank didn’t even leave behind a bank machine to help with the transition when it closed its doors in August.

That’s left residents relying on an ATM at a gas station when they need cash. 

“And a lot of people here still work off of cash,” McLellan said.

“There’s a lot of trades people and there’s a lot of farmers, and so they end up having to go to the bank if you’re younger and you’re still able to drive and stuff like that—it’s an inconvenience.”

McLellan said a volunteer seniors group has started running computer technology courses to help its older population—roughly 35 per cent of the village—learn to do online banking.

But some residents—not just seniors—simply don’t want to switch.

“They just don’t trust the security of the technology,” explained McLellan. 

That leaves residents with just one option: hop in the car or hitch a ride to the next closest bank.

How does a small business get a loan? Or deposit cash?

The closure of a community’s only financial institution is not just bad for the general public – small businesses are also left without services that can be vital for a local economy.

When CIBC closed its only branch in Terrace Bay, Ont. in 2019, the small community on the north shore of Lake Superior was left more than 200 kilometres away from the nearest branch.

Terrace Bay Mayor Paul Malashewskic was working at a local golf course at the time and says the business was immediately affected by something as simple as no longer having anywhere to get small change.

But over the longer term, he says, businesses also no longer have anywhere to make their daily deposits in town, and small businesses looking for loans – including new businesses hoping to open up in Terrace Bay –  have to leave the community to even start looking for a lender.

“It’s made everything harder for small businesses,” the mayor said.

Malashewskic said the community looked at options like enticing another bank or credit union to open, but he says once a bank leaves, others often don’t see a community as financially viable.

He says the one thing they have been able to do is to convince CIBC to open an ATM with a deposit slot, which, after five years, began operating in the town a few months ago.

“It’s not a perfect solution, but it’s better than it was,” Malashewskic said.

Both Malashewskic and McLellan say short of federal legislation mandating banks to remain open, there isn’t much a community can do when a financial institution decides to close.

McLellan has reached out to his local federal representative and to the Financial Consumer Agency of Canada (FCAC) but so far, no avenues have led to a solution for his community.

No rules requiring banks to stay

According to the FCAC’s website, federally regulated financial institutions, like banks, must give customers at least four months’ notice before closing.

If the branch is in a rural area with no other retail deposit-taking branches within 10 kms the bank is required to give at least six months’ notice.

But under the Bank Act, there are currently no rules requiring financial institutions to remain in communities at risk of becoming banking deserts if a branch is set to close.

Scotiabank sent a letter to clients announcing the closure in Osgoode last October and, in a statement to the media, called it a carefully considered but difficult decision.

But McLellan doesn’t blame the bank.

He said he spoke to bank staff before it closed, who told him the branch was seeing an average of six customers a day, which he acknowledged wasn’t sustainable.

McLellan would rather see the federal government step in to help stop banking deserts from spreading.

Osgoode is one of the more recent communities to lose their bank, part of a larger trend that is growing nationwide.

According to the Canadian Bankers Association, nine per cent of bank branches across the country have closed in the last 10 years.

In 2012 there were 6,205 individual branches in Canada. As of 2023, there were 5,605.

Just like in Osgoode, some of those 600 closed branches were the only banking option for smaller communities.

What now?

In 2013 the Canadian Centre for Policy Alternatives released a report making the case for postal banking in Canada–which would add banking services in existing post offices

The report outlined a study conducted by independent researcher and postal banking advocate John Anderson, who has also published a book on the subject.

“Canada Post has the largest network of retail outlets already in place across Canada,” Anderson explained. 

“Offering postal financial services would allow the millions of Canadians without local bank branches or easy access to banking the access they need.”

At the time it was published, Anderson’s study estimated three to 15 per cent of Canadians had no bank account.

He said postal banking could change that.

Anderson’s study examined other countries, including the United Kingdom, France, Italy, Switzerland, and New Zealand, that already offer postal bank services.

His findings showed that postal banking expands bank access and could even generate additional income to help preserve the postal system as traditional letter volumes decline.

But most importantly, Anderson said it wouldn’t be difficult to set up.

“Canada’s postal system has a long history of delivering financial services,” he notes. “[They] could develop a full banking system by building on what already exists.”

Back in Osgoode, while McLellan said he supports postal banking, he’s not optimistic it will happen anytime soon. 

“I did hear talk of the post office. They could step in and be home to at least a full banking machine,” he said.

“But that idea probably got pushed out by the banks.”

While the residents of Osgoode work to help each other get by without a bank, McLellan said he’ll continue advocating for other communities at risk of becoming banking deserts.

“It’s not just an Osgoode Village problem, it’s happening everywhere,” he said.

“These people have banked with the same bank for 40 years—there should be some obligation to help them transition.”