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Regional Banking Crisis Dooms More Bank Branches

Locations were already shuttering by the hundreds, especially in lower-income areas

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It’s another wobbly domino in the wake of the regional banking crisis. The failures in quick succession of Silicon Valley Bank, Signature Bank (SBNY) and First Republic Bank (FRCB) is likely to speed the disappearance of local branches, which had already been closing at a brisk clip.

“Branches will close” as acquisitions further reduce the number of banks, said Jad Edlebi, a senior researcher at the National Community Reinvestment Coalition (NCRC), an amalgamation of grassroots organizations dedicated to creating and extending wealth in underserved neighborhoods. In February of last year, the coalition put out a report on bank branch closures, which he co-authored.

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“Those three banks all have one thing in common,” Edlebi said of the trio of March and April bank collapses. “They’re all intermediate size, meaning they hover around $250 billion of assets. That (means) a lot of asset forfeiture, and a lot of money at stake in terms of deposits. I would look out for other banks of a similar size who have engaged in the same theaters as those banks have.

“This could potentially exacerbate it, especially for those who feel better connected to a smaller bank rather than a much bigger bank,” Edlebi said.

Even though the trend toward fewer bank branches might continue, if experts like Edlebi are to be believed, retail brokers say they are not freaking out. Emboldened by an apparent post-pandemic revival of physical retail of all types, they said that banks realize the value of being on Main Street. If they don’t, the spaces they leave are easily convertible to other uses.  

Brokerage JLL (JLL) analyzed Federal Deposit Insurance Corporation data on bank branches showing that the decline continued through 2022, with a net loss of 2,269 that year. According to the data, 1,321 opened and 3,590 closed. In the first quarter of this year, 249 opened and 514 closed for a net of negative 265.

In examining data on 10 US markets — including the New York, Boston, Atlanta, Washington and Los Angeles areas — JLL found that since the start of 2020, all 10 had suffered net losses, ranging from negative 128 in the Boston-Cambridge area to 736 in New York, Newark and Jersey City. 

NCRC’s report found that two-thirds of banking institutions disappeared from the early 1980s to 2021, when the number dropped below 5,000. Nine percent of all branches in the U.S. closed between 2017 and 2021, a loss of about 7,000 physical locations, and the closure rate doubled during the pandemic, with low- to moderate-income neighborhoods and minority neighborhoods hit especially hard.

“This trend is not new and has accelerated during the pandemic, impacting all sizes of financial institutions,” said Giles Wrench, JLL vice chairman for financial services, in an email. “It is too early to tell how the recent banking environment and mergers are going to impact retail bank branches.”

Bruce Mitchell, another NCRC co-author, said he “speculated” that banks saw a “slackening of demand” during the pandemic “and used that opportunity not to renew leases.”

The NCRC report found that branch locations nationally peaked in 2009 at about 92,400. Since then, according to the report, more than 13,000 branches disappeared from then to 2021, citing mergers and the disappearance of smaller institutions. In 1994, 84 percent of all banks were considered small banks. As deregulation and interstate banking set in, there were soon far fewer banks, and they were about evenly split between smaller and large institutions.

The report also found that all of the 50 metros it looked at lost branches between 2017 and 2021, though the impact varied widely. The hardest-hit metro was Portland, Ore., which lost almost 20 percent of its bank branches in those years, falling from 524 to 421. The lightest-hit area was in and around Austin, which lost just two branches, leaving it with 428. New York was the fourth hardest hit, losing 747 branches to leave it with 4,775.

Over a remarkably quick period starting in March, concern over solvency caused runs at Silicon Valley Bank, and, just a few days later, at Signature Bank, leading regulators to seize the banks. 

A few weeks later, First Republic Bank saw a run on its deposits. Regulators worked out a deal to sell the bulk of that bank’s assets to JPMorgan Chase (JPM), the nation’s largest bank. Many real estate investors depended on such banks to write them mortgages and business loans, thus leaving investors with fewer options. A decline in branches also means fewer options for retail real estate brokers, who have had to scramble to come up with users to fill spaces now that many consumers have opted to make purchases via e-commerce.

“I’m sure that JPMorgan is going to go ahead and close a lot of (First Republic) branches, especially where there is a lot of overlap,” Edlebi said.

A spokesperson for JPMorgan said it was “too soon to comment” on potential First Republic-related closings. 

Mike Townsend, a spokesman for the American Bankers Association, an umbrella and lobbying organization for the nation’s banks, said the concern over diminishing branch operations is overblown.

“Ensuring that everyone in the country can enjoy the safety, security and many other benefits of a bank account remains a top priority for the banking industry,” he said in an email. “Today, there are nearly 80,000 branches serving consumers across the country, and the latest data show that the vast majority of Americans live in close proximity to multiple bank branches. Thanks to bank investments in technology, customers are also able to access their account from anywhere using a range of innovative tools. The COVID-19 pandemic spurred a significant increase in consumers’ use of mobile and online banking platforms that has continued as they deposit checks, pay bills, or send money to friends conveniently and safely.”

In an October 2021 report, the Federal Reserve Bank of Cleveland found that despite widespread consolidation and closings, the nearest full-service branch for urbanites has remained stable at 1.5 miles over the previous 20 years, while improving to 4.3 miles from 4.6 miles for rural consumers.

But a February 2023 survey by the Federal Reserve Bank’s Philadelphia district found that the number of banking “deserts” — communities not served by a local bank — rose to 63 in 2022 from 48 in 2019 in the study area, which covered New Jersey, Pennsylvania and Delaware.

“Banks and credit unions closed 13 percent of their branches in the third district states between 2009 and 2019,” the report stated. “While the forces driving the trend are not entirely clear, potential explanations at least include the lingering effects of the Great Recession, the consolidation of the banking industry, and the rise of online and mobile banking.”

Certainly, the need to routinely physically enter a bank and stand in a line went away as the internet proliferated as well as automated teller machines. Things like making a deposit or a withdrawal can now be done on a computer, and paying a bill no longer requires writing a paper check and putting it in the mail.

But for major transactions, such as taking out a large business loan or maybe a home mortgage, customers still like to be face to face with a banker, and that tends to be done at a local branch.

“The idea of mobile banking has greatly increased in scale,” NCRC’s Edlebi said. “Having a branch, that really helps a lot in maintaining personal relationships, with a small business owner. Instead of working through a centralized system through a phone, where they don’t know who they’re talking to. That would certainly make a difference to some individuals.”

Annette Healey, executive vice president with CBRE (CBRE)’s New York tri-state retail brokerage services group, said that branches serve another purpose for a bank: They advertise its name, thus keeping it in customers’ minds.

“Historically, banks have wanted to have their names in front of people,” she said. “They reinforce that age-old axiom, that if we’re here, if we’ve got bricks and mortar, if we’re available to you, you can have confidence in us.”

And it’s not the end of the world if a bank branch closes, according to Joanne Podell, a Cushman & Wakefield executive vice chairman for retail services. The space tends to be easily convertible to other uses such as apparel, veterinary services, eyewear or medical, particularly if they are well-located in an area with high pedestrian traffic.

“In some places, (demand) is so strong, it’s challenging to find space again,” Podell said. “Which at some point will raise the rent.”

When told what the statistics show — that bank branches have been steadily disappearing for years now — Jeffrey Roseman, a founding partner of Newmark’s retail division, said, “That sounds overly dramatic.”

“I’m doing this now close to 30 years,” he added. “There’ve been peaks and valleys with banks. There’s always new banks that are coming in. I’m not seeing a lot of banks closing locations. I can think of five or six banks out there that are running around looking at space.”

CORRECTION: This article was updated with the correct statistics for the bank branch “deserts” in New Jersey, Pennsylvania and Delaware.