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Net Net: Promoting innovation and managing change

Bank branches slowly fading away in neighborhoods

Pedestrians walk past a Citigroup Inc. Citibank branch in New York.
Victor J. Blue | Bloomberg | Getty Images

Bank branch closures are heading for a record year as the industry trims down and services get increasingly electronic.

Institutions have shut 2,599 branches in 2014 against 1,137 openings, a net loss of 1,462 that is just off 2013's record full-year total of 1,487, according to SNL Financial. The move brings total U.S. branches down to 94,752, a decline of 1.5 percent.

The trend, which has branches at their lowest aggregate level in at least eight years, has come about due to a plethora of reasons: A surge in mergers and acquisitions, primarily concentrated in regional banks but recently spreading to larger ones; the move to e-banking where customers can do most of their tasks either online or at automated tellers; and the economics of a low-interest-rate narrow-yield-curve environment that makes it less profitable to be spread out.

Top bank closures

Bank Closures
Bank of America 148
SunTrust 60
BNP Paribas 47
KeyCorp 45
JPMorgan Chase 40

Source: Source: SNL Financial

General economics also play a role; JPMorgan Chase, for instance, lost some 45 branches in the Chicago area when Dominick's Finer Foods announced it was closing or selling 72 stores, many with bank satellites, while the Bank of Oklahoma said this week it will shutter 24 grocery store branches, primarily because of the preference for off-site banking.

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"We launched the Instore grocery branch model back in the mid-1990s as a way to add another convenience option for clients who were visiting the grocery store and the bank weekly, or even more often," said Pat Piper, Bank of Oklahoma's executive vice president for consumer banking, in remarks reported by NewsOK. "Today, the majority of our clients are using mobile and online banking, as well as deposit-friendly ATMs, for the transactions they used to do in these regular bank visits."

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Advocates have bemoaned the years-long trend of branch closures, with the National Community Reinvestment Coalition saying in a report that "the critical services they provide are essential to the vibrancy of communities." The group said that when branches close it opens to door to, among other things, predatory lenders.

But banking analyst Dick Bove thinks fear of branch extinction is overblown, with the trend likely to abate once the Federal Reserve normalizes interest rate policy and the yield curve—the spread between bonds of various duration—starts to expand.

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"When banks are trying to collect deposits because the yield curve is steep and you're able to make a reasonable return on deposits, you open up branches," the Rafferty Capital Markets vice president of equity research said in an interview. "When you have a flatter yield curve, low interest rates and you don't want to attract deposits, you close branches."

Among institutions, Bank of America has been the most aggressive in closing offices, shutting down 41 in the third quarter alone and 148 over the past year. The bank is the second largest by deposits after JPMorgan and ranked third in branches as of June 30 with 5,099, according to the U.S. Bank Locations site.

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Regionally speaking, the Chicago area has lost the most, with 125 shutting, while Washington, D.C., has been the next hardest hit with 39 closures, according to SNL.

Illinois leads the way among states, only six of which showed net additions over the past 12 months. The biggest gainer was Nebraska, with nine new branches. (Go here for a heat map on branch closings.)

Top 5 states for closures

Rank State Closures
1Illinois 136
2Pennsylvania 92
3Ohio 84
4Michigan 75
5New York 70

Source: Source: SNL Financial

Bove also attributed the high level of branch closings to a corresponding decline in banks. There were 6,978 banks in the U.S. at the beginning of 2009 and just 5,693 by midyear 2014, according to the St. Louis Fed. That's a decline of 18.4 percent.

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He said banks are returning to a "spoke-and-wheel" approach in which more responsibility for operations is delegated through branches. The reason is that there is still a need to sell products, and that can't be done through electronic banking.

"There are a whole bunch of factors related to branches—the configuration of branches, the sizes of branches," Bove said. "But they will never, ever go away."