How Many Banks Do We Really Need?

Mish

Covid-19 forced people to bank online. Many won't return.

People aren’t visiting branch banks. So Banks Are Wondering How Many They Need.  

Branch traffic fell more than 30% in April and the first three weeks of May compared with the same period last year, according to Novantas, a financial-services research firm. Teller transactions dropped 32% in March and April compared with the same period last year, Novantas said.

The forced shift toward mobile banking delivers an important win for traditional banks, which have been trying for years to steer people away from branches and toward apps and websites for routine transactions. If customers adapt without much complaint, that could give banks fresh reasoning to expedite planned closures and consider additional ones.

About 85% of customers who have relied more on mobile and online platforms plan to continue doing so once the pandemic subsides, according to a survey from consulting firm A.T. Kearney.

And 40% of people expect to visit their local branch less often after lockdown restrictions in their community end, according to consulting firm Simon-Kucher & Partners.

Closures Coming

Bank closures are coming and no one will even notice, except for those laid off from their jobs.

Covid-19 did not change this trend. Rather, it accelerated a trend that were already in place or just starting.

Also expect more work at home, more online shopping, more teleconferencing, and less business travel.

Grim Economic Data

  1. May 8: Over 20 Million Jobs Lost As Unemployment Rises Most In History
  2. May 15: Retail Sales Plunge Way More Than Expected
  3. May 15: Industrial Production Declines Most in 101 Years
  4. June 4: GDPNow estimates second-quarter GDP will decline by 53.8% annualized.

Global COVID-19 Risk Ranges Up to $82 Trillion

To understand the total global risk, please see Global COVID-19 Risk Ranges Up to $82 Trillion

Ripple Impacts May Last Years

For a detailed synopsis of the state of the economy and the ripple impacts, please see The Economy Will Not Soon Return to Normal: Here's Why.

Mish

Comments (27)
No. 1-13
lesbaer45
lesbaer45

"Banks" will not close. (Although some may / mergers will happen) "Branches" will close, no doubt about it.

TBH it's been a couple of years since I was last in a bank office. There are some transactions that AFAIC still require a bit of personal touch. Just paying bills and moving what little money I have around, not so much.

pvguy
pvguy

Speaking for myself, the only time I go to the bank is to deposit a check. Supposedly there is a way to do that with a smartphone, but I don't own one.

I did need something notarized a couple years ago, but that is really infrequent.

Tony Bennett
Tony Bennett

"Bank closures are coming"

...

More downward pressure on Commercial Real Estate.

Branches with drive thru won't be the easiest (cheap) to re-purpose.

Zardoz
Zardoz

I don’t miss standing in line behind a bunch of people who either can’t find what they need or want to have an extended argument with the teller. Good riddance.

tokidoki
tokidoki

The only time I go to a bank is to go get fresh hundred dollar bills for overseas travels.

Herkie
Herkie

While some online banking features offer convenience and flexibility that bricks and mortor do not provide, it also is not COMPLETE banking service.

I have checking, savings, credit card, and auto loan with my old credit union in Oregon. And with autodeposit for my income it is basically pretty easy to not need the old live teller in a local branch which is out of the question 3,010 miles to the nearest branch office. This is fine as long as there is not a problem that has to be dealt with in person. While even most of those can theoretically be dealt with remotely it is 1,000% easier when you can just go into the bank to get it straightened out.

For one thing I am paying a MASSIVE amount of money to get caash each month, would be easier if I just always remember to get cash back when I shop, but I always seem to forget. The ATMs are supposed to be fee exempt for "in network" ATMs but what does that mean? I go to machines that have the +PLUS logo and still get charged a fee by both the company that owns the machine and by my bank. Total of 5 dollars per transaction, so you basically have to take out the max cash in order to hold down cost on a percentage basis. If you just need (or only have) a small amount that $5 becomes an unreasonable percentage to be charged.

God forbid you make a real error and overdraft from so far away. And when a card is no longer funtional because the magnetic strip fails, or you have to cancel the card for fraudulent charges or you lost it, you can go into a branch and get a new card in minutes, getting a replacement on the other side of the continent can take a week or more while you have no access to your own funds, better keep the pantry stocked and the tank full.

Also, if you have reasons to change banking providers just the switch with government and auto withdrawal and such is a major MAJOR freaking headache. You switch your deposits to the new bank and withdrawals as well so the withdrawals come out the first of the next month but the deposits try and fail to go into the old account, has happened to me and a very damned expensive lesson it was too. It goes a lot quicker if you can go to the branch and just get it done.

davebarnes2
davebarnes2

My "bank" is DCU.org. I have been a member for 40+ years.
I have not been in a physical branch of a credit union network member in 8 years.
I deposit checks via my iPhone.
I do everything online.
Zero problems.
I have never been charged a fee for using an ATM. And, the only place I use them is in Europe. In the USA, I am 100% credit card for the last 18+ months.

All our retirement funds are with Fidelity which actually has a branch office near us. We meet once a year with our "advisor" whose advice I ignore.

Yet, in my neighborhood in Denver, banks have been increasing the number of branches. Weird.

Anna 7
Anna 7

Fuck the private banking system.

Move your money to credit unions or anywhere where rich private shareholders (politician bribers) do not disproportionately benefit from bailouts and the poor lending practices that periodically rationalize them.

Since people haven’t done it in the ten years since 2008, I’d like to see the USPS return to banking. People who didn’t bother to switch to a credit union might be tempted by the ease of finding a USPS office.

Casual_Observer
Casual_Observer

The general question is how much office space do we really need ? This is not just a question of bank branches or number of banks. It is a question for every industry imaginable.

Casual_Observer
Casual_Observer

There is a crash of epic proportions coming in commercial real estate. Some parts of the country never recovered from the great recession from a commercial real estate standpoint. There will also be a flood of people leaving some states or metro areas to work remotely. They might take a salary hit (see Zuckerberg comment) but they can live elsewhere. I suspect at some point they will realize living in a low cost local isn't what its cracked up to be.

Carl_R
Carl_R

I admit that I'm a dinosaur in some respects. I do visit branch banks once or twice a week, and don't have a debit card, and never have had. I agree that we may see less branch banks, but it's important to keep in mind that the main profit sources for banks are business accounts, and lending to both businesses and consumers. They mostly likely lose money on your checking and/or savings accounts, but more than make it up if you take a loan, or get a credit card through them. Will people do their borrowing online? That's the key question, as far as branches.

My personal opinion is that we don't need more banks, or less banks, so much as we need smaller banks. Smaller banks are more concerned about individual customers, and from my point of view, give much better service. That was really highlighted during the PPP loan process. Those that went to big banks had to wait, while at my small bank, I applied about 2pm one day, and had money in my account the next morning.

Jack and Joan
Jack and Joan

Its a sad day for local banks

frozeninthenorth
frozeninthenorth

Mish: You should see trading rooms, middle and back offices -- now that's a wipeout if I've ever seen it. In 2002 when I joined a large bank's Toronto trading floor (equity derivatives) there were 20 guys on the institutional F/X desk. Just before Christmas I was visiting an old buddy and the trading room looked empty -- Traders were down to 3 guys (only ever two in the office), back office was down to 5% and middle office had virtually disappeared -- all transformed by technology. Its almost impossible now to "write a wrong ticket" and don't get me started on "hiding tickets from the middle office" -- a well known ploy by traders in the late 90s and early 00.

Yet, and this is the kicker -- volume was nearly 5 times greater. Obviously the rise of the ETFs had something to do with the drop in traders -- but F/X took me by surprised until I found out that DB had made Autobahn its F/X trading platform almost fool proof and the treasurers were doing their own tickets, strategy and autobahn was helping them hedge their F/X exposure as often as they wanted -- no need for traders -- the trade was executed automatically...

That's just an example, but even my shop (derivatives) is mostly algos now with two or three guys doing complex pairs' correlation analysis. When I ran the desk, there were 7 of us (plus traders and support) now two guys -- and they didn't look very busy (they had no idea who I was...which was fine with me).

Two months ago, I set foot in a bank branch for the first time in five years, to open a account for a new company. We spent two hours chatting -- the lady was not busy and had plenty of time. She even called me twice on follow up issues (I found out later that it was a "salesforce" CRM that gave her a call list every morning to resolve issues). So service got better -- but I wonder who will train her replacement since the pool of workers has shrunk so much


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