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The Vanishing Brick-and-Mortar Bank Branch

Blame millennials, mergers and technology for fewer branches, more "banking deserts"

exterior of a vacant small bank building with a big blank sign where the bank name used to be

MediaNews Group/Boulder Daily Camera / Getty Images

En español | If you aren't seeing as many bank branches as you used to, your eyes aren't deceiving you: Thanks in large part to bank mergers and a shift to online banking services, thousands of branches closed in 2020. Although no one expects bank branches to go the way of the dodo, more closures are on the way.

Banks closed a record 3,324 branches nationwide in 2020, and opened 1,040, for a net loss of 2,284 branches.

— S&P Global Market Intelligence data

Consumers can do most banking tasks by phone or computer — but not all of them. When a branch closes, you may have to travel farther to get a safe deposit box or a certified check. “These are things that don't come up very often, but rank high in urgency when they do,” says Greg McBride, chief financial analyst for Bankrate.com.

Where have all the bank branches gone?

During the 2001-2007 housing boom, bank branches were as ubiquitous as Starbucks coffeehouses. “The pattern — particularly in the Sunbelt states — was that they would build a new subdivision, and a new strip mall near the subdivision, and in every one of those strip malls was at least one bank branch,” says McBride. “So there was a branch-building bonanza right alongside the homebuilding bonanza."

The number of bank branches peaked at 92,030 in 2009, according to the Federal Reserve Bank of St. Louis, but that number has declined about 11 percent since then. And the pace has been picking up. Banks closed a record 3,324 branches nationwide in 2020, and opened 1,040, for a net loss of 2,284 branches, according to S&P Global Market Intelligence data. (The data don't include temporary closures due to the pandemic.) U.S. Bancorp shuttered the most branches — 349 — and Wells Fargo shut down 331. California, New York, Pennsylvania, Ohio, Illinois and New Jersey saw the most net closures in 2020.

A big reason for the shutdowns has been that millennials, who became the largest generation in the workforce in 2016, prefer to bank online. Banks are simply adjusting to their needs: Depositing a check by phone is far easier than going to a branch or even an ATM. “It's one of those things where if you do it once, you'll never make a deposit at a branch or ATM again,” says McBride.

Another reason for closing down branches is merger activity in the banking sector. When two banks merge, they often shut down some branches that are too close to each other. The COVID-19 pandemic slowed bank mergers in 2020 to 110, from 261 in 2019, according to consulting firm Deloitte. But some of those were whoppers, such PNC's $11.6 billion acquisition of BBVA USA Bancshares in November 2020. A surge in dealmaking at the end of 2020 is a sign that more may be in the future, Deloitte said in its “2021 Banking and Capital Markets M&A Outlook.”

Finally, there's the matter of profitability. Bank branches in upscale urban neighborhoods pull in more money from deposits, fees and services than those in small rural areas. “Banks keep on moving to the areas that are more profitable, but they are leaving other communities behind with no banking,” says Zain Tariq, manager of data journalism at S&P Global Market Intelligence.


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Driving farther is just the start

One obvious effect of the spate of branch closings is that people have to drive a bit more to get to a bank. The Federal Reserve Bank of St. Louis estimates that the median distance between a closed bank branch and an open one is nearly two-thirds of a mile in rural areas, and less than a quarter-mile in urban areas. This doesn't measure the distance between a closed branch of one bank and an open branch of the same bank, however, so the estimate minimizes the potential inconvenience of a bank branch closure.

A bigger worry are so-called banking deserts, areas where the nearest bank branch is 10 miles away or more. In those areas, the Federal Reserve says, it can take people 20 minutes or more to get to a bank, particularly if they don't have reliable access to transportation. A 2017 study found 1,132 banking deserts in the U.S.

More importantly, small businesses in banking deserts may have problems getting a quick loan in an emergency. Instead, they have to keep cash on hand, Tariq says. “If you need a quick loan and they [the local bankers] know you, they're going process it faster than if you go through the bank online, where you're basically talking to a robot,” he says.

And in some communities, bank branches function as more than a bank. Capital One has Peet's Coffee shops in some bank branches and gives Capital One cardholders a 50 percent discount on coffee beverages. Umpqua Bank in Oregon goes one better: It offers free Umpqua-branded coffee and has community spaces that host yoga classes and nonprofit meetings.

What to do if your bank branch closes

  1. See if there's a branch of your bank a reasonable distance away.
  2. See if your bank offers enough online options to suit your needs. You may not need branch services to deposit checks, check your balances or transfer money between accounts.
  3. Make sure there are enough fee-free ATMs in your area for when you need cash.
  4. Consider moving your account to another nearby bank or credit union if you need branch services. Other nearby banks may offer incentives for new customers, such as higher interest rates on certificates of deposit.
  5. Consider using an online bank for day-to-day banking. Online banks typically have slightly higher interest rates than their brick-and-mortar brethren. Make sure the bank is legit with the Federal Deposit Insurance Corporation's BankFind tool. 

Even though bank branches are closing, they won't go away completely. “I think brick-and-mortar branches still play an important role,” Tariq says. “While many millennials opt for digital banking, physical branches still add a lot of value when it comes to getting consultancy and investment advice."

Nevertheless, you should get used to seeing a “Closed” sign on your local bank branch. You may end up having to move your safe deposit box, McBride says. “It's going to be somewhere not as close, not as convenient, and there's no guarantee you won't have to move it again in a couple of years."

John Waggoner covers all things financial for AARP, from budgeting and taxes to retirement planning and Social Security. Previously he was a reporter for Kiplinger's Personal Finance and USA Today and has written books on investing and the 2008 financial crisis. Waggoner's USA Today investing column ran in dozens of newspapers for 25 years.

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