Just was in a bank in a nice neighborhood in Indianapolis. Asked the banker how it stayed open with little traffic. His answer is that the branch was an asset it could be leveraged to allow the bank to loan more money.
Can someone in the retail financial services industry familiar with their regulation please clarify this assertion?
It almost sounds as if there is some rule that allows a bank to open a retail branch, declare that branch an asset and simultaneously expand its loaning capacity, then use that loaning capacity elsewhere (like its trading arm). This is a variation on the old 80-90's Japanese corporations using real-estate-as-asset-securing-loans bookkeeping: at some point someone notice that they could pledge real estate the company owned as collateral to secure loans that could be leveraged into more real estate for more loans, and then churn the real estate holdings in a up-trend market and rinse-repeat for even bigger loan packages.
Even in a post-Gramm–Leach–Bliley world that repealed Glass–Steagall, it stretches my credulity to believe that even lax bank regulation would allow branch openings at a completely speculative stage (with no proven loan activity yet) to partly drive bank loanable reserve levels. I'm more inclined to believe that these branches don't see a lot of foot traffic in the Net era, but that they justify their cost by sporadically serving customers in a local market who already hold loan products serviced by the bank, and need an occasional in-person visit to the bank.
I thought of that possibility, and discounted it while posting, because I thought the bank would make more ROI, and have more loanable reserves under that assertion, if it straight commercially leased the space instead of putting a branch on it. Or land banking the land instead of putting a relatively specific-purpose improvement on the land. Branch buildings in the US commonly have drive-thrus, which are not easily re-purposed for other kinds of businesses, thus subtracting some profitability on the back end of the land banking for demolition or modifications. I'm not in the business or anywhere close to that kind of business though, so I'm hoping someone familiar with what goes into these branch building decisions pipes up here.
If the branch is on valuable enough land it will show up on the bank's balance sheet as an appreciating asset with a net gain in value even after subtracting out wages, depreciation, amortization, taxes, etc.
