The FDIC’s Share of Deposits data released last week reveal that the decline of branches slowed to 1.4% for the year ending June 30, 2024, its lowest level over the past decade (see chart). The finding clearly reveals the direct impact core deposits have on the actions banks take on their networks. In today’s environment of higher interest rates and competition for deposits, banks have been reluctant to risk disturbing their core customer relationships by closing branches.
But what the data may mask is that the U.S. continues to be over-branched, or more specifically, over-banked. We simply have too many bank branches chasing too few deposits (especially as direct banks have sucked up 20% of all consumer deposits). Even as banks reduce their staffing levels, branch-associate productivity is extremely low, and because most branches are already operating at near minimum staffing, it won’t improve.
In more concentrated markets like the U.K. and Australia, large banks can reduce their branch footprints in direct proportion to the shift in customer behavior to digital. But here, only the very largest banks have the scale in any individual market to do so. Smaller regional and community banks need to maintain their physical presence, however spare, to survive.
As interest rates decline and the value of deposits decreases, the steeper downward trend of branch closures may resume. But that still won’t solve the structural issue, nor will accelerated M&A. Indeed, a clear path to resolving the underperforming overcapacity remains as elusive as ever.
Branch Count Trend
Branch closures have slowed because of continuing competition for deposits,
but as rates fall, the downward trend will likely resume.
Source: Curinos BranchScape, FDIC
