Can banks resist the urge to overexpand?


Interesting article from the Associated Press this morning, taking a look at how fast banks expanded during the past five years. The article states that banks added more than 10,000 full-service branches in the past five years, with nary a bank in the inner city (actually, one of every 10 was in a minority neighborhood).

The banks were "racing" to plant themselves in various parts of the country deemed exclusive or growing. The problem that the article looks at is the dearth of banks located in inner-city locations, which could lead to more charges for customers. This is a very real problem, and warrants the discussion; however, I want to take a look at the problem of overexpansion for the banking industry.

Let's take a look at this possibility. These banks are expanding rapidly, and they are running out of money -- at least many of the banks needed to be bailed out. So why not continue to spend money on building new mega-branches? I understand that you need to get your businesses where the customers are, but spending money right now isn't the wisest thing for some of the bigger banks to do. More banks means more building costs, more land costs, and more employee costs -- I just feel that the banks may be better served if the money was spent elsewhere, or not at all.

Take a look at Starbucks (NASDAQ: SBUX). Part of the coffee company's struggles is due to overexpansion -- could it happen with the banks? With banks trying to get to the urban (and suburban) hot spots, we could see these financial institutions overstretch their means. Could this mean that the banks fall by the wayside? I doubt it, but I have learned to never say never in this economy.

On another note, I hope that bailout money wasn't used for expansion, mainly because of the appearance of impropriety. Perhaps no bailout money went into the expansion, and the moves could have been planned for quite some time. That said, this expansion could raise some questions and stir public ire toward banks, which is already running high. What is worse: using public money to fund trips to the spa or to open more locations in order to make more money in the future? I know, expansion hardly compares to spa trips, but I would rather the banks use the bailout money to make sure this crisis never happens again -- not making sure there is a location on every corner.

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Last updated: February 10, 2012: 05:08 AM

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