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Re: Some Good Bank Closings Please



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Jonah,

It’s possible we may see some closure of branches, but it’s not likely to be massive. The primary reason that Goldman and Morgan changed their banking status was to be able to get access to stable deposits, and physical branches are key driver of getting them. A primary motivator for Citi buying a huge piece of Wachovia this morning was to finally acquire a large U.S. branch network.

Think of a bank branch as a combination of (i) a retail store like any other, that just happens to sell checking accounts and loans, and (ii) a servicing center for individuals and small business in the neighborhood — how do you think the diners you like having around handle all those coins and small bills that people use there? A major reason there has been a huge improvement in the number, quality and operating hours of bank branches in the Washington, DC market that you have experienced is that Commerce, which has an explicit strategy of applying the power retail model to banking, entered the market and forced up the level of play.

To that extent that we do see some branch closures as a result of what’s happening in the market, it’s not likely to be a happy thing, but rather the fact that consolidation of the banking industry at the corporate level (JPM, Citi, and B of A look like they will have 30% of the U.S. market when this is all over) means that local oligopolies may re-emerge, making it rational for each competitor to invest less in retail service. This wouldn’t just mean fewer branches, but also shorter operating hours, worse checking account fees and services, and so on than we would otherwise have.



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