The latest edition of the Federal Reserve Bank of New York’s Current Issues in Economics and Finance, The Evolution of U.S. Bank Branch Networks: Growth, Consolidation, and Strategy, is available.
Authors Beverly Hirtle and Christopher Metli examine trends among eighty banks with large and midsized branch networks between 2001 and 2003 and find that large branch networks of more than 500 branches grew slowly and strategically during this period as the parent institutions adjusted their branch holdings within existing markets. By contrast, institutions with midsized branch networks, between 100 and 500 branches, expanded their branch holdings more aggressively and tended to conduct more of their branch transactions in new markets.
The share of bank branches in large and midsized branch networks has grown steadily on a national basis over the past decade. The midsized and large branch networks considered in this study control more than 50 percent of all U.S. branches.
Between 2001 and 2003, the number of branches held in large and midsized branch networks grew by 5.3 percent, an increase of 2,090 branches; branch growth was just 2 percent for the U.S. banking system as a whole.
The authors contend that the expansion of the midsized branch networks and the overall trend toward consolidation provide strong evidence that banking organizations continue to view retail banking and deposit taking as profitable activities. This renewed interest in traditional branch banking stands in contrast to attitudes in the late 1990s, which emphasized the appeal of online banking over “bricks-and-mortar” banking.
The data used for this article do not cover the wave of large bank mergers in 2004. This new merger activity suggests that the lack of growth by large-sized bank networks between 2001 and 2003 may represent something of a temporary pause rather than a permanent slowdown.
Beverly Hirtle is a vice president in the Research and Market Analysis Group’s Banking Studies Function; Christopher Metli was an assistant economist in the same function when this article was written.