Trouble in the Village. Community Banks Face New NIMBYism

Can the proliferation of new bank branches threaten the vitality of downtown retail areas? Some think so. As reported in the Boston Business Journal recently, proposals for new bank branches in two affluent communities in the metro-Boston area have led to protest and a call for the passage of new zoning regulations to limit the creep of banks within village retail areas. This “bank backlash” has arisen in the Boston neighborhood Beacon Hill and nearby suburb of Newton, where a spate of new bank branches in neighborhood retail areas has been met, increasingly, by objections from residents. These opponents believe that the arrival of new banks means that local mom and pop retailers, popular in the neighborhood, are squeezed out. Left unchecked, these opponents argue, the growth of new bank branches will further diminish the vitality of these neighborhood retail districts and harm local businesses. This conclusion appears to ignore the traditional benefits that banks have historically provided as anchors in their respective communities. Ultimately, communities need to be wary of adopting ad-hoc zoning targeting banks because of the risk of harming the very vitality of these retail districts that such regulations are intended to protect.

In Beacon Hill, controversy erupted earlier this year when a national bank announced plans to replace the popular Charles Street Market. The ensuing uproar led to organized neighborhood opposition. The bank ultimately chose to withdraw its proposal rather than contend with the long and winding road to an occupancy permit. However, a new zoning ordinance was subsequently proposed in the Boston City Council in an attempt to codify the anti-bank sentiment that embroiled the Beacon Hill community.

Banks are not finding it any easier to open new branches in some suburbs. Earlier this year in Newton, an economic development advisory group recommended a temporary moratorium on new banks by requiring a special permit for any bank seeking to move into the ground floor of one of Newton’s village centers. Presently, the City’s Board of Aldermen is continuing to evaluate the need for such regulatory intervention.

The opposition to new community banks in neighborhood retail areas appears to stem from their perceived nature as “low-activity” businesses which, due to limited banking hours, leaves downtown shop windows darkened in the evenings. However, local bank representatives in Newton have objected to what they perceive to be an unfair characterization of banks as harming the vitality of village centers. They point to numerous benefits that banks provide to the local business environment, including generating significant foot traffic during business hours (oftentimes with extended hours into the evenings and on weekends), providing important lending services to both residents and local merchants, serving as stable tenants and providing other varied but vital community functions –everything from providing conference space for community group meetings to sponsoring little league teams.

Some municipal leaders, like Mayor Thomas Menino of Boston, appear to recognize the risks inherent in imposing new zoning or permitting hurdles that target banks specifically and have cautioned against this approach. In response to the City Council proposal, Menino was quoted earlier this spring by the Boston Business Journal as saying. The principal concern with regulatory intervention targeting banks is that such efforts may ultimately prove to be counterproductive – instead of enlivening retail areas, the unintended consequence of imposing new barriers to entry for qualified bank tenants could be higher tenant turnover and vacancies – ultimately, the lowest activity use and most harmful to the vitality of a retail district. Instead, municipalities that take a more thoughtful approach to village planning are likely to rediscover the “return on investment” provided by banks as key partners in the success of Main Street.

Related topics: Banking, Retail, Zoning