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Revisiting Network Optimization As Economic Tides Shift

This Month in Retail Banking

Bank leaders continue to struggle with determining the right number of branches for their network. The 30% reduction in transactions since the pandemic suggests that continued consolidation is needed. Still, branches are still the leading source of high-quality new customer acquisition.  

One relationship that Curinos has been evaluating over the past few years is the pace of consolidation relative to the average retail deposits per branch. Obviously, one way to boost the deposits per branch is to close more branches. We have seen some banks leverage this approach to drive higher levels of network efficiency, while other banks have been content to limit their number of closures despite relatively low retail deposits per branch.    

Looking at the four quadrants of this chart, we can diagnose the opportunity for banks to accelerate branch closures. The best example of this is banks in the lower right quadrant that have lagged the industry in closures and also have lower-than-average retail deposits per branch.   These banks have an opportunity to drive additional efficiency. 

One barrier to consolidation for many banks is the density in their markets.  If they have low average branch share, it can be hard to close some without impacting the competitive position.   Because the size of the dots on the chart represents average branch share in their top 20 markets, the banks with the larger dots should still have opportunity to thin. Banks with small dots, on the other hand, may be constrained by their thin market position.      

The lower left quadrant is also worth consideration.  While these banks have been closing branches faster than the industry average (sometimes in conjunction with mergers), many of these banks may still have gas in the tank for further consolidation.  The largest dots suggest the banks still have strong share positions in their largest markets from which they can continue to trim. 

While many banks accelerated closures during the pandemic, we have seen a noticeable decline in the number of closures as bank declare the effort as a mission accomplished. Unfortunately, banks recently have been reluctant to close more branches because the surge of deposits brought on by the pandemic and the recent rising-rate cycle have buoyed branch profitability. If the credit cycle turns and betas accelerate, we belief bank leaders will have no option but to revisit network optimization. This round will be harder than the last and will require improved analytics to make the hard, but necessary, decisions to right size the network in alignment with customer needs. 

Figure 1:
Three-Year Branch Count CAGR by Average Retail Deposits per Branch

For Top 100 Banks in the US by Retail Deposits* ​

Note(s):*First Republic Bank, Signature Bank (NY), and HSBC removed as significant outliers​
Sources: Curinos Analysis, Curinos BranchScape
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