BankThink: To Serve Communities, Banks Need the Ability To Grow

Originally published by American Banker

As federal policymakers scrutinize bank mergers, the consolidation’s effect on communities is quite rightly an important focus. And analysis shows that consolidation has allowed banks to serve those communities better, and that a current revolution in the business of banking will only continue that trend.

Historically, the place where banks served customers was a local branch. Critics of bank mergers argue that mergers decrease branch service, but the data tells a different story. A recent analysis of Federal Deposit Insurance Corp. data by the Bank Policy Institute shows that while the number of banks fell by more than half over the last 40 years, the number of branches doubled. Furthermore, in recent years branch closings have occurred about as frequently among banks that engaged in merger and acquisition activity as those that did not. That indicates that mergers are not creating banking deserts.

This result makes intuitive sense: A given area can only support so many branches, regardless of how many different banks own those branches. Of course, areas that have seen population losses ended up with fewer branches — and dry cleaners, hair salons and other businesses.

Fortunately, while you can’t get your clothes cleaned or your hair cut online, mobile banking is alive and growing. Partly for that reason, evidence shows that mergers do not cause consumers to be unbanked. A 2019 survey from the FDIC found that only 2.2% of unbanked households cited inconvenient branch locations as the main reason behind their being unbanked. Furthermore, the rise of online banking is likely to have driven many of the branch closings in recent years, not consolidation among financial institutions.