The U.S. banking sector is undergoing a significant transformation, echoing societal shifts that saw payphones and video stores disappear into obsolescence. The silent erosion of bank branches has been transpiring within the financial sector for over a decade, beginning in 2010 and intensifying in recent years.
According to the U.S. Federal Deposit Insurance Bureau (FDIC), large commercial U.S. bank venues have sharply declined from 8,000 in 2000 to 4,236 by 2021, further dwindling to 4,194 in 2022. Normative banking procedures have been remarkably altered within this period, as evidenced by the dwindling count of U.S. branch bank sites directly linked to mainstream banks.
As per S&P Global Market Intelligence, U.S. banks closed 149 branches and launched 49 in March, culminating in an overall 78,588 operational branches.
Should this declining trend in bank branch numbers sustain momentum, bank branches could disappear within the next ten years. The Self Financial estimates that the U.S. bank branches will dip dramatically from about 60,000 in 2023 to 15,660 in 2030, with numerical reductions continuing until the projected total elimination of bank branches by 2034.
The national shift is exemplified by the Bank of America Corporation (BAC), the nation’s second-largest bank by assets, mapping plans to reduce the extent of its physical footprint through the closure of several branches across the U.S.
According to the OCC’s weekly circular, the Charlotte, North Carolina-based bank is actively pursuing authorization from the Office of the Comptroller of the Currency to close the branches. The applications were filed with the regulator on October 5
It has gotten into the act, closing 5% of its physical locations in Philadelphia. The anticipated closures will have a significant impact nationwide.
Let’s first understand the reason behind the closures and identify why this trend has seen a significant acceleration over the past few years.
Recent years have seen an accelerated rate of bank branch closures, amplified by changing consumer behaviors and evolving banking infrastructures. The advent of the COVID-19 pandemic and subsequent social distancing mandates in 2020 and 2021 catalyzed this trend. As foot traffic was reduced to near zero at local branches, there was a soaring increase in the adoption of digital products and banking services.
Banks are directing more resources toward enhancing their online platforms to meet customer demands for digital banking services. Consequently, the need for physical branches has diminished, prompting banks to adjust their physical footprints constantly. The practical implications include enhanced bottom lines fueled by cost savings and greater investment into technological advancements.
As banks become more digitally savvy, the industry anticipates a continuous drop in the number of branches in operation.
The banking industry’s consolidation through mergers and acquisitions has also been instrumental in accelerating this trend. Banks often buy out rivals to reduce overlapping staff, services, and facilities expenses. The result is increased profitability, with the closure of redundant branches being key to these cost-saving measures.
Large regional and national banks predominantly lead branch closure as their extensive networks provide ample cost-reduction opportunities. Nevertheless, banks of all sizes are progressively steering their investments away from physical locations and toward digital platforms.
During BAC’s quarterly earnings call, CEO Brian Moynihan shared that the company’s consumer business headcount had decreased from around 100,000 to roughly 60,000 – a decline that continues as digital banking experiences an increased adoption.
As of 2022, a clear preference for online banking among U.S. adults at 78% was evident, while only 29% preferred traditional, in-person banking. The closure of BAC branches is unlikely to impact individual accounts directly; the bank provides several channels that allow customers to access and manage their accounts, including online banking, mobile banking, ATMs, and customer service centers.
However, there is an underlying concern that…
Continue reading at INO.com
