Study Ties Branches to Deposits
The MRI study revealed that despite the growth of online banking, there is a very strong link between the number of bank branches in each city and the deposit balances banks generate in that city. The report showed that, despite the growth in remote-banking alternatives, nearly 90% of all bank deposits are made by consumers living in the region.
"What was surprising to us is the level of how strong the relationship between branches and balances turned out to be," said MRI Executive Vice President Dr. Dan Geller. "We didn't expect it to be that strong or significant. It is so high that it is not a case of randomness but is very much cause and effect. We didn't deal with a sample of banks and cities we took the entire population of the subject to remove the issue of sample validity so these results are no accident."
The analysis examined the linear relationship between the numbers of branches in 371 different cities with the corresponding deposit balances in those same cities.
Geller said that based on the data it is highly probable that changing the number of bank branches in any city will have an impact on the amount of deposits a bank has in that city-$116 million per branch on average, although this figure varies from city to city. The raw data contained information about branches and deposit balances for 10,577 federally insured institutions and was obtained from the FDIC's summary of deposits.
"Although we only looked specifically at banks and I do not have empirical data to validate this, but I'd say it is highly probable that the case is similar for credit unions," said Geller. "Again this is just based on observations but people are people and their behavior is similar whether a bank or credit union. In uncertain times people tend to retract and do more locally and the reason is that personal touch provides a higher sense of security and familiarity."