It looks like some American banks cannot close up their existing branches fast enough. United States banks are closing faster than ever before, as their customers are reportedly using mobile and online banking options more often than not. Conversations with seven of the country’s top ten banks revealed that more branches would wind up closing if it were not for concern about governmental or public backlash.
S, are banks obliged to keep branches open, or will the initiatives to cut operating costs drive the future acceleration of further branch closings?
According to a report from SNL Financial, banks in the U.S. closed up around 1,487 branches last year. That number ranks in as the highest number of closures recorded since the firm first started tracking this statistic back in 2002. The vast majority of the branch closures have been because of the increased use of online and mobile banking options. Technology has made it easier for customers to manage their accounts via their computers or on their smartphones.
Even though the bank branch closures have been on the rise, the total number of bank branches currently doing business in the U.S. is somewhere around 80,000, according to information from the FDIC. This high number makes the United States one of the highest branched per capita countries in the world. This is why, in a time when revenue growth is slow and compliance costs are high, that many bankers are doing all they can to revamp underperforming bank branches or close them up as quickly as they can.
Closing a bank branch is not as simple as locking the front door and notifying customers of other banking options available to them. Conversations with banking executives from several of the largest U.S. banks revealed that between 50 and 80 percent of all branches that should be closed because of financial issues are not closed because of potential regulatory repercussions or backlash from the public. Many bank analysts believe that 25 to 30 percent of all bank branches fail to generate profits. This could mean that well over 10,000 banks in the country are underperforming currently.
Bank executives mentioned that some of the branches that were not profitable were in lower income markets or in rural areas where access to alternative locations is usually limited. This helps to create a unique relationship between making smart financial decisions for the bank and desiring to create trust and goodwill with consumers on the tail of the last big financial crisis.
When bank execs were asked if reconfiguring underperforming bank branches was a viable option, many bank executives said that they were very concerned about negative reactions that might come if tellers were replaced with kiosks or moved to smaller locations. One banker said, “We’re caught between a rock and a hard place with many of the closings we would like to do. The decreasing number of transactions at many of these offices makes them highly unprofitable, but moving to an automated model brings its own issues.”
The obligations that bank executive cite as reason to keep branches open, along with the real estate costs of closing branches may help to explain why branch closures are still happening at a relatively conservative rate. Despite the fact that bank branch transactions continue to drop the costs associated with operating branches continues to increase. Interestingly enough, a poll that asked if people thought banks should be required to stay open revealed that most people did not believe that the branches should stay open.
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