Summary4 min read

Podcast Summary: Thoughts on the Market – "Why Brick and Mortar Banking Still Matters"

Host: Manan Gosalia, Head of U.S. Large Cap & Mid Cap Banks Research, Morgan Stanley
Date: August 6, 2026

Episode Overview

In this episode, Manan Gosalia explores the ongoing importance of physical bank branches amid the rise of digital banking. He discusses recent trends in branch expansion by America’s largest banks and explains how these decisions are shaping competition for consumer deposits. The analysis highlights the strategic motivations behind where and why banks are opening new locations, and what that means for both customers and the industry’s future.

Key Discussion Points & Insights

1. Trends in Bank Branch Expansion

Many assume physical branches are becoming obsolete due to the shift to digital services.
Contrary to this assumption, large U.S. banks are actively investing in new branches.

"America's biggest banks are actually accelerating their investments in physical locations. That shift could reshape the competition for your deposits."
(Manan Gosalia, 00:23)
12 large U.S. banks have collectively identified 1,557 target markets for new branches.
- 34 markets feature competition among multiple banks.
- 9 of these markets have five or more banks pursuing them.
80% of new branch openings since mid-2025 have been in these highly-targeted locations.

2. Geographical Hotspots & Market Criteria

Most branch expansion is taking place in the Southeast and Texas, as well as some Midwest cities and major metropolitan areas.
95% of target markets either have:
- Above-median projected population growth, or
- Are in the top 10% for deposit growth.
Highly targeted cities include:
- Nashville & Atlanta: each targeted by 7 banks.
- Miami, Dallas & Denver: each targeted by 6 banks.
These markets represent communities with strong population and business growth—prime for building long-term banking relationships.

"These are places where households and businesses are growing and where banks see an opportunity to build relationships that could last for decades."
(Manan Gosalia, 01:25)

3. Do Physical Branches Still Attract Deposits?

Data between 2022 and 2025 shows a clear relationship:
- When a bank’s branch share increased in a market, its deposit share also increased 90% of the time.
Branch density is key:
- "Just a few scattered branches were not enough" for meaningful competition.
- Banks need at least a mid-single-digit share of local branches to be competitive.
- At 10% or more branch share, banks’ deposit share exceeds branch share by a median of 3.5 percentage points.
"So density, not just presence, is what matters most."
(Manan Gosalia, 02:20)

4. The Competitive Cycle & Bank Costs

Large banks aren’t there yet:
- 60% of banks’ positions in expansion markets remain below 5% market share.
- This signals an early stage in a "long competitive cycle."
Competitive pressure is already visible in deposit pricing:
- CD rates are higher in the South than in the Northeast.
- As banks compete for deposits, funding core deposits becomes more expensive.
  - This is showing up in higher retail CD rates and in quarterly earnings.
- Higher funding and branch costs are putting pressure on bank margins and increasing expenses.
  - This trend is expected to continue into 2027.
"The cost of gathering core deposits could move structurally higher, and the lesson is surprisingly old school. You can do almost everything on an app, but a branch on the corner still carries weight."
(Manan Gosalia, 03:16)

Notable Quotes

On the purpose of expanding branches:
"America’s biggest banks are actually accelerating their investments in physical locations. That shift could reshape the competition for your deposits."
(Manan Gosalia, 00:23)
On market selection:
"These are places where households and businesses are growing and where banks see an opportunity to build relationships that could last for decades."
(01:25)
On the importance of branch density:
"Banks generally need at least a mid single digit share of local branches to compete effectively. At 10% or more branch share, deposit share exceeds branch share by a median 3.5 percentage points."
(02:07)
On persistent importance of branches:
"You can do almost everything on an app, but a branch on the corner still carries weight."
(03:16)

Timestamps for Key Segments

00:01 – 00:23: Introduction and the question of physical bank relevance
00:23 – 01:25: New data on branch expansion and geographical focus
01:25 – 02:07: Population, deposit growth, and competitive branch markets
02:07 – 02:54: Deposit share vs. branch density and what it takes to compete
02:54 – 03:16: Competitive pressures, rising CD rates, impact on margins
03:16 – 03:51: Key takeaway: enduring value of branches amid digital banking

Takeaway

Despite the increasing dominance of online banking, physical bank branches remain crucial for deposit gathering and competitive strategy. Market data shows that not just presence, but density of branches, is instrumental in gaining market share. While technology makes transactions easier, banks are betting that a visible, local presence still matters to customers—especially in high-growth regions—suggesting that brick-and-mortar banking may be here to stay, albeit with new competitive and cost dynamics.

Loading summary

Transcript2 lines

[00:01]
A
Welcome to Thoughts in the Market. I'm Manan Gosalia, Morgan Stanley's head of U.S. large cap and mid cap banks Research. Today, why the bank branch you passed on your commute may matter more than you think. It's Thursday, August 6th at 10:00am in New York. When was the last time you went to your bank? You probably do most of your daily banking online and maybe go to the local branch for occasional transactions, but like getting a certified check or talking to a financial advisor. So you might think that bank branches are fading into the background, but America's biggest banks are actually accelerating their investments in physical locations. That shift could reshape the competition for your deposits. In our research, we looked at where 12 large US banks are expanding their footprints and we identified 1557 target markets. 34 of those markets are being pursued by multiple banks. And nine of those markets are being pursued by five or more banks. Since mid-2025, about 80% of these banks new branches have opened in those markets. Most of the expansion is happening in the southeastern Texas, with additional activity in the Midwest and several major metropolitan areas. 95% of the target markets have either above median projected population growth or they have ranked in the top 10% for deposit growth. That helps explain why Nashville and Atlanta are each targeted by seven of the banks, while Miami, Dallas and Denver are targeted by six. These are places where households and businesses are growing and and where banks see an opportunity to build relationships that could last for decades. The central question is whether physical branches still attract deposits. The evidence suggests that they do. From 2022 to 2025, 90% of the time when a large bank increased their branch share in the market, their deposit share also increased. But to become a real contender, a few scattered branches were not enough. Banks generally need at least a mid single digit share of local branches to compete effectively. At 10% or more branch share. Deposit share exceeds branch share by a median 3.5 percentage points. So density, not just presence, is what matters most. Large banks that we looked at have not reached that level. 60% of their positions in expansion markets remain below 5% market share. And so this buildout looks like the beginning of a long competitive cycle. Even then, the pressure is already visible in what banks are paying for deposits now. The highest offered retail certificate of deposit rates are higher in the south compared to the Northeast. Higher rates do make deposits more expensive for banks to fund. In fact, evidence from the recent earnings reports suggests that this may already be happening. And we expect higher funding and branch costs to pressure bank margins and lift expenses. Into 2027. This means the cost of gathering core deposits could move structurally higher, and the lesson is surprisingly old school. You can do almost everything on an app, but a branch on the corner still carries weight. Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share thoughts on the market with a friend or colleague today.
[03:51]
B
The preceding content is informational only and based on information available when created. It is not an offer or solicitation, nor is it tax or legal advice. It does not consider your financial circumstances and objectives and may not be suitable for you.