The Demise of Branch Banking
Technology, Consolidation, Bank Fragility

Abstract

Banks are closing branches at an unprecedented rate. In various countries up to four out of five branches have been closed, while in the US over 11,000 branches representing eleven percent o its peak stock in 2009 have been closed so far. To differentiate between various explanations for this fundamental transformation, we comprehensively study branching dynamics across 34 OECD countries and 84,494 US branches over up to 26 years. While technological factors correlate with the change in branch numbers across countries and the opening and closing of branches, bank fragility and consolidation are surprisingly at least as robustly associated with branching dynamics. Interestingly, online banking capabilities seem to play a less important role than internal processing technology. General bank level factors are more important than local internet access. Bank internal use of technology appears to be more relevant than use of technology by competitors. While large banks rely on technology to shed branches, small banks close branches when fragile or consolidating.

Keywords: branches, banking, technology, bank health, mergers

JEL Classification: G21