from the St Louis Fed
— this post authored by Julie Stackhouse
On Feb. 6, the Wall Street Journal published a startling statistic: Between June 2016 and June 2017, more than 1,700 U.S. bank branches were closed, the largest 12-month decline on record.1
Structural Shift
That large drop, while surprising, is part of a trend in net branch closures that began in 2009. It follows a profound structural shift in the number and size of independent U.S. banking headquarters, or charters, over the past three decades.
In 1980, nearly 20,000 commercial banks and thrifts with more than 42,000 branches were operating in the nation. Since then, the number of bank and thrift headquarters has steadily declined.
The reasons for the decline in charters and branches are varied. Regarding charters, the passage of the Riegle-Neal Interstate Banking and Branching Efficiency Act in 1994 played a significant role in their decline. Banks operating in more than one state took advantage of the opportunity to consolidate individual state charters into one entity and convert the remaining banks into branches. Almost all states opted in to a provision in the law permitting interstate branching, which led to a steady increase in branches.
Trend Reversal
Even before the number of charters declined, however, the number of branches grew steadily throughout the 1980s, 1990s and early 2000s. It peaked in 2009, when the trend reversed, as seen in the figure below.
Since 2009, the number of commercial bank and thrift branches has shrunk nearly 10 percent, or just over 1 percent per year.
The initial wave of closings can be attributed to a wave of mergers and failed bank acquisitions following the financial crisis. There was an immediate opportunity to reduce cost through the shuttering of inefficient office locations. Branch closings were also influenced by earnings pressure from low interest rates and rising regulatory costs.
