Banks Struggling With Rationalization of Branch Networks

by Mercator Advisory Group 0

Recently released FDIC data shows that in 2010, for the first time in 15 years, the number of bank branch offices declined in the US. The decrease was relatively small, from 99,550 to 98,517 (or barely 1% change) representing the net of branch closures and branch openings. Given the continuing consolidation throughout the banking industry, not to mention the stresses of the past several years and the continuing lackluster economy, banks can hardly be blamed for seeking out opportunities to reduce their respective cost structures.

The author of this New York Times article posits that the closings have been concentrated in low to middle income areas, and expresses concern over the lack of CRA enforcement with respect to the role of banks in serving under-banked neighborhoods. He quotes a former regulator:

“In a competitive environment, banks are cutting costs and closing branches, but there are social costs to that decision,” said Mark T. Williams, a banking expert at Boston University and a former bank examiner for the Federal Reserve. “When a branch gets pulled out of a low- or moderate-income neighborhood, it’s not as if those needs go away.”

Although all communities do need banking services, one cannot accurately assess the banks’ motivations without examining the data at the individual branch level and on an individual bank basis. It would make an interesting project to really prove a point one way or the other, but this article doesn’t delve that deep. Instead it makes generalized allegations about what might be true. The policy issues behind the subject are legitimate, and deserved more serious assessment than this story gave them.

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