What Is Branch Banking?

Branch banking is the operation of storefront locations away from the institution's home office for the convenience of customers.

In the U.S., branch banking has gone through significant changes since the 1980s in response to a more competitive and consolidated financial services market. Most crucially, since 1999 banks have been permitted to sell investments and insurance products as well as banking services under the same roof.

More recent innovations including internet banking services and phone apps are dramatically changing the banking landscape again.

Understanding Branch Banking

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 authorized well-capitalized banks to acquire branch offices or open new ones anywhere in the United States, including outside their home states. Most states had already passed laws enabling such interstate branching.

Key Takeaways

  • Branch banking is the operation of storefront spinoffs offering the same key services as the institution's flagship home office.
  • Branch banking has undergone significant changes since the 1980s in response to a more competitive national market, deregulation of financial services, and the growth of internet banking.
  • If you use a branch bank today, it is most likely to be one of the "big four."

Then, in 1999, Congress repealed laws that had forced banks to keep their investment services separate from their banking services.

Those two actions combined led to the current proliferation of branch offices that are dotted around the U.S.

After the financial crisis of 2008-2009, the banking industry went through a consolidation phase. The branch bank, for most Americans, now means one of the "big four": JPMorgan Chase & Co., Bank of America, Wells Fargo, or Citibank.

How Branch Banking Works

Branch banking allows a financial institution to expand its services outside of its home location and into smaller storefronts that function as extensions. This can be a more cost-effective approach because it allows smaller offices to provide key services while larger locations may have additional offerings.

The phone app still hasn't entirely replaced the bank branch or ATM. (In any case, apps don't cough up cash yet.)

According to a GOBankingRates survey in early 2019, almost half of the 1,000 participants said their preferred method of banking was a branch bank or ATM. Twenty-five percent responded that they use a mobile app instead of branch banking.

Branch banking networks have evolved into multistate financial service networks that allow depositors to access their accounts from any banking office.

However, the number of branch banks is decreasing. According to the American Bankers Association (ABA), the number of US bank branches declined from 99,540 in 2009 to 91,861 by the third quarter of 2016, the most recent figures available.

Banks are constrained from closing some branches by the terms of the Community Reinvestment Act of 1977, which requires banks to make an effort to provide services to low- and moderate-income neighborhoods.

Unit Banking Vs. Branch Banking

Unit banking is defined as an institution that operates without branches. Some independent community banks still prefer to operate on a small scale.

Not all unit banks are independent, even if they do not share a name with a larger banking entity. They may be among the banks that are owned by a larger holding company while retaining a familiar name.