This article confirms my own observations in Manhattan May.

A Bank for Every Block – New York Times

At the intersection of 32nd Street and Park Avenue in Manhattan, a Citibank branch sits on the northeast corner. A Commerce Bancorp branch is across the street. A North Fork bank stands over the southwest side. And taking up the fourth corner spot: a new branch for J. P. Morgan Chase, which is not more than a short sprint from an HSBC banking center up the block.

The business results are becoming dysfunctional.

Deposit growth is expected to slow, and some data suggests that banks are  stealing customers from each other rather than enlarging the overall size of the market.

More broadly, branches remain the premier engines of growth.

The rush into retail banking reflects a fundamental shift by the industry. A decade ago, most big banks were shedding their branches, not building more. They steered their customers away from teller lines and encouraged them to use cash machines and telephone banking services, which were less expensive to operate. And many had grand visions of Internet banking, even if consumer-friendly technology had not yet arrived.

Today, there has been a serious change of mind. Banks view their branches as gold mines, not costs. Their checking accounts can generate a steady stream of fee income. Their tellers can sign customers up for new products, spurring overall sales.  All the while, branches can collect millions in cheap deposits that can be lent out at higher rates. Even as they offer options like online banking and kiosks in convenience stores, banks still hope to lure customers inside a physical branch.

The result has been since the dot com crash, banks have invested in branches.

The upshot is that big banks are treating their branches more like traditional retail outlets than ever before. Bank of America’s New York regional manager is a former Barnes & Noble executive who talks about his “distribution network.” Commerce promotes its evening and weekend hours; Wells Fargo executives refer to their branches as stores. And across the industry, there is greater focus on branding, customer service and placing more products — from home equity to retirement savings accounts — into existing customers’ hands.

The results are self evident.

And in what may be one of the industry’s telltale signs, Bank of America’s success riding the retail wave has made it poised to overtake Citigroup as the biggest bank in the country. Its coast-to-coast network of 5,700 branches towers over the 894 Citibank locations nationwide.
…
The New York metropolitan area, the country’s wealthiest market, has in many ways been emblematic of the national resurgence in retail banking. Five years ago, a bank branch in New York City was an endangered species; many were closing or moving from corner storefronts to cheaper locations on second floors. Today, it is hard to miss one if you stroll down any street. The metrics make the conclusion that with branches come deposits. Nationally, from 2000 to 2005, total retail deposits have risen at a 6.2 percent annualized rate, to $4.6 trillion, while the total number of retail branches has grown 1.3 percent a year, to more than 86,000.

Deposits per branch grew about 4.8 percent a year, well above the national average annual inflation rate. And in some markets like Los Angeles, Miami, and Washington — which have both fast-rising income and population rates — those figures are even higher.

The data  suggests that instead of attracting the dollars of new customers, the big banks are hoping to take money away from one another — a pattern consistent with the cluster of branches at some corner locations and high-traffic spots. “It seems like we are over-branched, but in Manhattan you have a bunch of relatively affluent people stacked on top of each other into the sky,” said Michael Poulos, the head of Mercer’s retail banking practice.

I still believe, despite this one sided article, that branches are the account opening vehicle, but web sites are the loyalty vehicle.  All the branches in Manhattan were empty.  There is a change going on here, and its more than branch saturation.  Witness Bank of America’s success at getting deposits with their ING type offer.