Bankers’ Hours column: Branch banking is not a profitable proposition
Several years ago, when the financial crisis was wreaking its greatest havoc, a poll showed that bankers had replaced lawyers as the most reviled profession.
Bankers, ever conscious of their image, didn’t take well to being unfriended. (Attorneys, on the other hand, seem to almost revel in the public’s attitude; some of the best lawyer jokes have come from my friends who practice law.)
So, when the Boulder City Council recently issued a temporary suspension of building permits for financial institutions on the city’s Pearl Street Mall, there was understandable angst among banking execs. Was this a new wave of mindless, knee-jerk discrimination, an aftermath of the unfair, and inaccurate, perception that banks caused the Great Meltdown?
Not really: As Sal Tessio explained to Tom Hagen in “The Godfather,” “Nothing personal, just business.”
One councilman was quoted as saying, “I don’t have anything against banks [but] they don’t attract people, they don’t attract tourists, and they’re certainly not open in the evenings.” Which is pretty much spot on. They don’t exactly have the brio of a brew pub.
The banking facilities that would be on that particular mall would be branch offices, and, should you want a quiet place to, say, meditate, go to a cemetery or maybe a bank branch in a large metro area. Very little happens in many, if not most, of these offices. Of course some, with active loan origination operations, can be pretty active, but the majority do very little business indeed.
Some observers of the financial services industry have wondered if the cost/benefit ratio justifies branching, especially for smaller, so-called community, banks. They’ve likened it to a sailing ship taking anchors, encasing them in concrete, and then dropping them below the water line, just to slow the craft down.
Banks make money by moving money, which means lending money. Some banking consultants opine that every full service branch, that is one that takes deposits, has drive windows and ATMs, should have annual loan production goals, and then meet them, or, if not met, the building should maybe be sold to a restaurant chain.
When the economy started rebounding from the Great Recession, big banks began closing branches with the stated objective of becoming more efficient and, of course, more profitable. That business model seems to be decaying as the big guys return to the mantra of market share. The smaller institutions are often following along with the belief that branches build “franchise value.”
Very few have hit on the strategy that’s so obvious it approaches the no-brainer classification: Open loan offices, without all the expense of drive up windows, security systems, and tellers that often have very little to do except work very hard at staying awake for eight hours. A bank that has a good regulatory rating can open, and close, loan production offices pretty much at will, whereas opening and shutting down a full service branch is a much more complex action.
Bankers are like virtually every other business and industry: It’s easier to try to go back to the old way of doing things than strike out to new frontiers. Oil producers, from Saudi Arabia to a two F-150 pickup wildcatter in West Texas, and retailers like Sears, Macy’s and J.C. Penney, are doing the same thing repeatedly, and expecting different results.
Which is like a dinosaur standing in the swamp waiting for the weather to change.
Pat Dalrymple is a western Colorado native and has spent almost 50 years in mortgage lending and banking in the Roaring Fork Valley. He’ll be happy to answer your questions or hear your comments. His e-mail is email@example.com.
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