from the Kansas Fed
— this post authored by Rajdeep Sengupta, Economist and Jacob Dice, Research Associate
Although the total number of bank branches in the United States increased from the mid-1990s to 2007, this number has declined since the 2007-08 financial crisis. A loss in bank branches is potentially problematic because it may reduce local consumers’ access to financial services as well as small businesses’ access to credit.
National economic conditions, banking regulations, industry trends, and improvements in information technology can all influence a bank’s decision to expand or contract its branch network. However, the number of branches varies significantly across geographic areas, suggesting local conditions may also influence bank branching activity. If bank branching adjusts to local factors, then policies that improve local conditions may have the added benefit of attracting bank branches.
In this paper, we examine the relationship between bank branching and local conditions over the last two decades to assess which factors contributed to the decline in bank branches. We find a strong association between the number of branches in a county and that county’s population, income, and employment. In addition, we find that the association between local factors and the total number of bank branches has not changed in a meaningful way since the crisis. However, we do find that the relative influence of local competition on branch openings and closings strengthened after the crisis, while the influence of local population, income, and employment weakened.
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