Three US banks have gone bust in recent weeks

Three small US banks have failed in the past few weeks, making it four busted lenders so far this year. That marks a turnaround from 2018, when no American banks collapsed, one of only three years since 1933 without a single bank failure (the others were 2005 and 2006).

City National Bank of New Jersey, Resolute Bank in Ohio, and Louisa Community Bank in Kentucky failed between Oct. 25 and Nov. 1, according to the Federal Deposit Insurance Corporation (FDIC). Another tiny lender, Enloe State Bank in Texas, went bust in May this year.

The bank busts in 2019 appear idiosyncratic, meaning there are few signs of underlying turmoil that is likely to spread to other lenders. The Office of the Comptroller of the Currency cited "unsafe or unsound practices," when it appointed the FDIC as a receiver of City National Bank. Kentucky's Louisa Community Bank had weak policies and high management turnover, according S&P Global Market Intelligence; an employee reportedly pleaded guilty to embezzling $45,000 from the lender earlier this year.

Although the American financial system appears solid, analysts and investors are carefully watching banks' net interest margin (NIM), which is the money they make from the spread between loans and deposits. The Federal Reserve has cut its benchmark interest rate three times this year, and that rate is now set to a range of 1.5-1.75%. Smaller lenders can be more sensitive than bigger banks to changes in NIM because they are less diversified.

Although NIM has increased slightly this year, that spread is relatively narrow in historical terms. This suggests smaller lenders could struggle if the US central bank cuts rates even more in the coming months.

The number of bank branches in the US is on the decline. Thanks to community banks, however, places with relatively small populations have been able to buck the trend and hold onto their local bank.Only 3% of the banks in counties which had just one branch in June 2010 had closed up shop as of June 2019, according to Federal Deposit Insurance Corp. (FDIC) data compiled by Quartz. In contrast, counties with 20 or more full-service branches in 2010 have lost more than 10% of their banks. In short, lenders are probably pruning branch networks in places where there's the most competition, or where greater overlap makes multiple storefronts redundant.

Banks are closing physical branches as more personal finance activity moves online. A growing number of consumers would rather open an account or check their balances on their phones than visit a traditional teller. Community banks in rural areas must also contend with shrinking populations. Venture capital has flowed into next-generation fintech firms (Quartz member exclusive) that offer slick apps and no branches.

But not everyone is ready, or wants, to do all of their banking on a smartphone. The elderly and some vulnerable groups aren't always comfortable using mobile phone apps, and bank branches can help preserve their ability to live independently. The poor and lowerincome consumers are also more likely to rely on cash, which requires offline bank infrastructure.

Many people still prefer face-to-face conversations with bankers when loans and larger sums of money are on the line. Research in the UK has shown that small businesses are more likely to seek the financing they need to grow if there's a bank branch nearby.

American community banks appear to be well anchored in the places that need them most. All 174 US counties with only one bank branch are served by banks with less than $2 billion in assets, suggesting that the vast majority are community banks.

These small lenders are sometimes started by businesspeople who live there, or may be handed down within a family, which means they aren't subject to the whims of a parent company headquartered many miles away.