What Is Branch Banking?

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

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

Key Takeaways

  • Branch banking refers to the operation of storefront spinoffs that offer the same key services as the institution's flagship home office.
  • Since the 1980s, branch banking has undergone significant changes 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" banks: JPMorgan Chase & Co., Bank of America, Wells Fargo, or Citibank.

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. At that time, most states had already passed laws enabling interstate branching. Then, in 1999, Congress repealed laws that had forced banks to keep their investment services separate from their banking services.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" banks: JPMorgan Chase & Co., Bank of America, Wells Fargo, or Citibank.

Branch banking allows a financial institution to expand its services outside of its home location and into smaller storefronts that function as extensions of its greater operations. For some institutions, this can be a cost-saving method; it allows smaller offices to provide key services while larger locations may have additional offerings.

More recent innovations, such as internet banking services and mobile banking apps, have dramatically changed the banking landscape.

According to a survey conducted by Morning Consult on behalf of the American Bankers Association, nearly three-quarters of Americans–or 73% of Americans–most often access their bank accounts via online and mobile platforms. This represented an increase over last year (72 percent).

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

In addition, the number of branch banks is decreasing. According to the American Bankers Association (ABA), there were about 86,000 bank branches and 19,000 credit union branches as of June 2019.

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 refers to a single, usually very small bank that provides financial services to its local community. Typically, a unit bank is independent and operates without any connecting banks or branches in the area.

However, not all unit banks are independent. Even if they do not share a name with a larger banking entity. There are some banks that retain a familiar name, even though they are owned by a larger holding company.