Bank branches: why are they closing and what is the impact?

NOTE: This briefing paper is no longer being updated. For later developments, see The future of local banking services and access to cash (CBP-9453).

The number of bank branches in the UK roughly halved from 1986 to 2014 and closures are expected to continue. Banks have closed branches in order to increase their profitability and to redirect investment as customers increasingly shun physical branches and move to online banking.

The loss of branches may have little day-to-day impact on those who have been able to move to online banking and who have access to physical services when they need them. However, concerns have been raised about the effect of the closure of branches on those that need the physical infrastructure of a branch. This impact is likely to be particularly significant when the last bank branch in a community closes.

Around 10% of the rural population now lives at least 10 miles away from their bank's nearest branch. This creates significant challenges for the disabled and elderly who are less able to move to online banking. The Financial Conduct Authority raised concerns that this may be contributing to these groups’ financial exclusion. This also has an impact on the 20% of small businesses with a turnover below £2 million that use branches as their primary means of banking. Concerns have also been raised about the impact of branch closures on ensuring the long term viability of the cash system.

Measures are in place to reduce the impact of branch closures, such as the Access to Banking Standard and arrangements to provide some banking services via the Post Office. However, these measures have not provided adequate reassurance to parliamentary committees that the negative impacts of branch closure are being adequately addressed.

There have been calls for the UK Government to consider legislation to require the provision of a physical banking services network. The Treasury Select Committee said in May 2019 that face to face banking is “still a vital component of the financial services sector and must be preserved.” It said that if “the financial services market is unwilling to innovate to halt the closure of bank branches, market intervention by Government or the [Financial Conduct Authority] may be necessary to force banks to provide a physical network for consumers”. One way in which physical banking might be preserved could be via new bank hubs in Post Offices, or through facilities shared by multiple banks.

The National Assembly for Wales Economy, Infrastructure and Skills Committee called in October 2019 for the “UK Government… to review whether the Access to Banking Standard is sufficiently robust to address the impact of bank closures on vulnerable people, SMEs and local communities, or whether regulatory or other mitigating action is needed.”

The May Government rejected calls for it to intervene to prevent the closure of branches. It argued that these are commercial decisions. However, it said that it would continue to engage with banks and other stakeholders to minimise the impact of branch closures.