What is Branch Banking

Branch banking is engaging in banking activities such as accepting deposits or making loans at facilities away from a bank's home office. Branch banking has gone through significant changes since the 1980s in response to a more competitive nationwide financial services market. Financial innovation such as internet banking will greatly influence the future of branch banking by potentially reducing the need to maintain extensive branch networks to service consumers.

BREAKING DOWN Branch Banking

Branch banking allows a financial institution to expand services to an area outside of the home location, functioning as an extension of the home location. This can be a more cost-effective approach because not all locations are required to offer the same levels of services as the home location, allowing smaller offices to provide key services while larger locations provide additional services.

Key Branch Banking Regulations

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 outside their home states after June 1, 1997. Most states passed laws enabling interstate branching prior to that date. Branch banking networks are gradually evolving into multistate financial service networks where depositors can access their accounts from any banking office.

Branch Banking and Self-Service

As of 2014, banking customers reported completing more than 80% of their needed transactions through a self-service option, leaving approximately 20% of a retail banking customer’s activities being directed through a physical banking location. Self-service options include, but are not limited to, the use of ATMs, mobile check deposit and automated balance inquiries processed over the phone.

As internet banking has increased, certain banks have closed many branch facilities, estimated at 1,487 closures in 2014. Certain banks assert that additional branches are underperforming, likely due to the increase in online banking options, but will likely remain.

Concern over certain regulations, like the Community Reinvestment Act of 1977, which governs banking activities in rural communities, has reduced the rate and number of bank closures to a degree.

Unit Banking

In contrast to branch banking is unit banking, which includes any bank that operates without any associated branches. The bank may exist as a single unit by choice, such as certain small, independent community banks, or may not be permitted to open branches per certain government restrictions.

Not all unit banks are completely independent, even if they do not share a name with a larger banking entity. Some are owned by larger holding companies with associations with other banks.