38 JULY / AUGUST 2018 On Feb. 6, the Wall Street Journal published a startling statistic: Between June 2016 and June 2017, more than 1,700 U.S. bank branches were closed, the largest 12-month decline on record.1 Structural Shift That large drop, while surprising, is part of a trend in net branch closures that began in 2009. It follows a profound structural shift in the number and size of independent U.S. banking headquarters, or charters, over the past three decades. In 1980, nearly 20,000 commercial banks and thrifts with more than 42,000 branches were operating in the nation. Since then, the number of bank and thrift headquarters has steadily declined. The reasons for the decline in charters and branches are varied. Regarding charters, the passage of the Riegle-Neal Interstate Banking and Branching Efficiency Act in 1994 played a significant role in their decline. Banks operating in more than one state took advantage of the opportunity to consolidate individual state charters into one entity and convert the remaining banks into branches. Almost all states opted in to a provision in the law permitting interstate branching, which led to a steady increase in branches. Trend Reversal Even before the number of charters declined, however, the number of branches grew steadily throughout the 1980s, 1990s and early 2000s. It peaked in 2009, when the trend reversed, as seen in the figure below. Since 2009, the number of commercial bank and thrift branches has shrunk nearly 10 percent, or just over 1 percent per year. The initial Why Are Banks Shuttering Branches? Julie Stackhouse Executive Vice President Federal Reserve Bank of St. Louis Julie.Stackhouse@ stls.frb.org DIRECTORS / SENIOR MANAGEMENT
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