Why Brick and Mortar Banking Still Matters

Manan Gasalia analyzes the ongoing physical branch expansion by large U.S. banks, focusing on 57 high-growth markets. He finds that deposit share is closely tied to local branch share, but most banks remain far below the critical 10% threshold, setting up a long competitive cycle. The resulting funding and cost pressures are expected to structurally raise deposit costs and weigh on bank margins into 2027. - Large U.S. banks are accelerating branch openings, with 80% of new branches since mid-2025 going into 57 high-growth target markets. - Southeast and Texas (e.g., Nashville, Atlanta, Miami, Dallas, Denver) are the most contested markets, each targeted by multiple banks. - 95% of target markets have above-median population growth or top-10% deposit growth. - Branch share and deposit share are closely linked: 90% of the time when a large bank increases branch share, deposit share also rises. - Density matters: at 10%+ branch share, deposit share exceeds branch share by a median 3.5 percentage points, but 60% of bank positions remain below 5% share. - Competition is already pushing up CD rates in the South relative to the Northeast, and further margin and expense pressure is expected through 2027. - The analysis suggests a structurally higher cost of gathering core deposits for large U.S. banks.