Why so many bank branches?

[Doofrat]

There is a new strip mall in a newer area near where we live. This mall has less than 20 stores including the standards: video store, dry cleaners, several restaurants, dentist, grocery store, etc.. One thing I noticed is that this mall has three banks. I’ve noticed that there are branches all over the place in other areas too.
Does anybody know why this is? When was the last time you actually walked into a bank? I did a month ago because the new ATMs wouldn’t accept a rebate check, but that was about it for the last couple of years’ that I can think of. Can anybody shed some light on this?

Doofrat

[Omega Point]

I’ve noticed that too where I live. There’s actually one intersection where they’re building 4 banks, one on each corner. It’s happening in other parts of town too. It baffles me. I live in a growing area but there can’t be that many people with money moving here to justify the amount of banks that are springing up.

However, it’s not just banks. They’re also throwing up new retail areas too even though most of the already built ones are only about 60-70% occupied. I think there is going to be a lot of pain in the next few years.

[stansd]

Availability bias…look it up.

Stan

[bsrsharma]

A few years back, during the early part of bubble mania, I was shopping at a Food-4-Less and saw a new Wells Fargo being opened. A young lady was stopping all grocery shoppers and letting them know about the new “facility”. Instead of just walking, I stopped and asked why they have so many new grocery store based branches. She mentioned that most of the business was Home Equity Credit and re-financings (cash out). I think this business was a huge river of gravy for all the banks. Just package the loans and sell for profit. Banking doesn’t get any less risky than that. If you ask me, I think the economy of the entire nation was pretty much Home Equity Withdrawal driven the last 5 years or so. If you invert that cycle, we are bound to see a 5 year stagflation/recession period now.

[asragov]

Retail branch banking is one of the most profitable types of banking.

There are branches everywhere to get as many cheap deposits as possible (most checking accounts are not earning much interest, if any).

Everyone’s behavior on how they use their bank is different, but this is one of the ways that banks simply mint money (i.e. paying 0% for deposits and then loaning them out).

Most branches easily capture enough deposits so that the savings on the money that they have covers their cost of operation.

[Doofrat]

So if they get $1 of deposit from me, then they can loan out ten times that in loans (I don’t know what the ratio is) and make 6% on that so they would get 60c a year off each dollar I have deposited or something like that, or are my aassumptions way off?

[JWM in SD]

“then they can loan out ten times that in loans (I don’t know what the ratio is) and make 6% on that so they would get 60c a year off each dollar I have deposited or something like that, or are my aassumptions way off?”

That sounds suspiciously like Hedge Fund SOP with CDOs doesn’t it? Wonder how that model works out in the long run…maybe ask someone at Bear Stearns 😉

[asragov]

The leverage in banking works roughly this way (very roughly):

For every dollar that a bank takes in deposits, it has to have have roughly 8 cents of its own money (that is, capital). Capital in this case usually refers to shareholders’ equity.

So, they will probably lend out all of your deposits, but will have to have 8% of their own capital to play the game. This is the leverage, from the point of view of the bank.

If you want to read about this in more detail (there is a lot of detail – it is basically its own science), you can try:

http://en.wikipedia.org/wiki/Capital_requirement

and also

http://en.wikipedia.org/wiki/Fractional-reserve_banking

[bsrsharma]

They don’t even have to leverage anything if they simply bundle and sell the loans and take a nice cut. That is why they all loved to make HELOCs and Re-Fi lonas. The ultimate lender may be someone on the other side of the world. Faster they loan, more profit they made. That is why they all blanketed with branches in every hole in the wall so the J6P can’t walk anywhere without hearing about HELOCs/ReFis. Now that the show is over, expect them all to close.

[Alex_angel]

I presume you are talking about torrey Hills. Well there are more banks going up so get used to it. Better than having a mcdonalds put in.

[Anonymous]

The bank I work for has several supermarket branches but we don’t do any secondary market loans out of them. Every loan originated in a supermarket branch stays portfolio. Our primary reason for being here is customer convinience and checking account aquisition. We keep longer hours 7 days a week and their is always a manager/loan officer and personal banker on duty. It’s a huge competative advantage for us in our market. Every supermarket branch aquires several new client relationships daily. Many other banks in our market struggle to attract 1 or 2 new customers in an entire week.

[Critter]

“they would get 60c a year off each dollar I have deposited or something like that, or are my assumptions way off?”

Assumptions might be OK, math is off: 6% of $1.00 is six cents, not sixty.

[Diego Mamani]

When I was young, bankers were fairly well educated. But it looks like a HS diploma is not required nowadays:

The bank I work for has several supermarket branches but we don't do any secondary market loans out of them. Every loan originated in a supermarket branch stays [in our] portfolio. Our primary reason for being here [there?] is customer convEnience and checking account aCquisition. We keep longer hours 7 days a week and their [there] is always a manager/loan officer and personal banker on duty. It's a huge competItive advantage for us in our market. Every supermarket branch aCquires several new client relationships daily. Many other banks in our market struggle to attract 1 or 2 new customers in an entire week.

[Author]

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