Friday, January 25, 2013

This Week in Bank Failures

Banks are shrinking, but not very quickly. Bank branches are closing across the United States at a rate of about 40 per week. But banks continue to open new branches at half that rate, so the rate of decline is only about 20 branches per week. It is not enough to notice unless it is your branch that closes.

If banks are going out on a financial limb to keep branches open, it is a sign that they are betting on an early turnaround in the real estate market and the home mortgage business. The branches that are losing money today will be profitable again if people start coming in looking for a loan to buy a house. Realistically, though, the housing turnaround is still a decade away. The long wait until that happens could turn branch banking into a war of attrition, with competing banks eyeing each other as they wonder who can really afford to keep branches operating at a loss year after year. In the end, it will not be a surprise if it is the community banks and credit unions, which actually make a profit operating ordinary banking offices, that have most of the remaining banking footprint in most of the places in the country, outside of the major metropolitan areas.