Nº 20-83: The Demise of Branch Banking Technology, Consolidation, Bank Fragility

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 of 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 36 OECD countries, 2,744 US counties, and 84,494 US branches over up to 26 years. While technological factors explain some of the change in branch numbers across countries, counties, and individual banks, bank fragility and consolidation surprisingly determine an even larger component of branching dynamics. Interestingly, online banking capabilities play a less important role than internal processing technology. While large banks rely on technology to shed branches, small banks close branches when fragile or consolidating. No single factor by itself offers a universal explanation for the secular de-branching of banks.