Bank Branches Go Belly Up

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We've written stories before on the increased consumer demand for online and mobile banking applications, detailing the clear trend away from the traditional bank branch and toward mobile banking. Now, a new study details how, for the first time in a decade, bank branches are in steep decline.

The Wall Street Journal, in partnership with Charlottesville, Va.-based SNL Financial, reports that U.S. bank branches are falling in number for the first time since 2002. Big banks like JPMorgan Chase (Stock Quote: JPM) and PNC Bank (Stock Quote: PNC) are reporting “hundreds” of bank branch closings, according to numbers compiled by SNL.

The analytical firm reports that there are 98,913 bank branches across the U.S., and that number is down 0.3% since the last report in June 2009.

Part of the problem is less revenue for the banking industry, which copes with that problem by investing less in infrastructure and their workforce. The Federal Deposit Insurance Corp. reports that the 8,012 banks in the U.S. accounted for $12.5 billion in profits, and that’s down $100 million since 2007. That has led to a bloodletting among financial institutions, with 140 U.S. banks closing their doors and another 179 banks being absorbed in merger and acquisition deals.

The Wall Street Journal survey pegs the price tag for a new bank branch at $1 million apiece, and most banks don’t make any money on branches until they’ve been in business for a few years.

Geography also contributes to the reduction in bank branches. Hard-hit areas like Detroit — which reports an unemployment rate of 30% — have banks that are seeing less money flowing into their coffers. Consequently, a regional bank like Comerica (Stock Quote: CMA) will close six bank branches in the area by the end of 2010. But the bank is opening 13 branches in less vulnerable areas like Texas.

Then there is the growth of online banking. According to a report from the Tower Group, online banking is growing at an annual rate of 27%, compared to 1.4% for bank branches. Tower Group research director Jerry Silva calls online banking “the most powerful retail channel that banks have ever deployed.”

With those three powerful forces — declining revenues, geographical issues and technology — working against banks, don’t look for the venerable bank branch to recover any time soon ...  if ever.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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