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Ask the Expert

How did the pandemic change the way we bank?

As appeared in the Cleveland Fed Digest's Ask the Expert

Even though it appears that the worst of the pandemic is in our rearview mirror, the habits we picked up while locked down at home—when visiting bank branches was out of the question—have stuck.

The pandemic accelerated the shift to digital banking as opposed to traditional visits with bank tellers and lenders. We do more banking on our phones, and it’s expanded from simple tasks like checking a balance to all sorts of things, such as transferring money to accounts and paying mortgages. One local bank recently announced that it plans to convert 60 percent of its branch footprint to a technology model. In this new model, customers will be met with screens with which they will conduct their banking. Customers will still be able to speak with a teller, but that teller will be operating in a remote location.

Consequently, there will be less demand for teller positions, something we’re already starting to see in the data we use to examine hiring in the industry. When we look at the large banks in the region we serve, we’ve seen over the past year the number of job postings for tellers has dropped about 8 percent. Branch banker positions, such as loan officers, have declined 24 percent in that time.

At the same time, we also have a labor shortage, and like every industry, banks are struggling to attract and retain talent. Banks of all sizes are competing for a limited talent pool, and community banks struggle to compete with the larger banks that have more resources to put toward salaries and benefits. If banks don’t have the staffing to work their branches, we might begin to see temporary branch closures, something we did see during the pandemic. As bank regulators, our biggest concern is that banks won’t be adequately staffed to execute core business lines and to function safely and soundly.

There are other impacts, too. During the pandemic, profitability in the banking sector declined to its lowest point in ten years. Interest rates were low, and government programs—including the Paycheck Protection Program, stimulus checks to consumers, and loan forbearance—dampened loan demand. When interest rates were low, banks pivoted to fee-based services and products, and many of them continue to pursue those business lines to supplement their income. When profitability is challenged, banks tend to view merger activity more favorable as merging with another institution can reduce costs through scale. Therefore, consumers may have seen their community banks change names or disappear altogether as more bank mergers and acquisitions occurred, particularly over the last two years.

Another important change the pandemic has brought is the reduction of overdraft fees. During the pandemic, scrutiny from legislators and the public caused many banks to curtail or eliminate these fees, and all four of the largest banks in the region we serve have significantly reformed their overdraft and nonsufficient funds policies. Many banks have reduced the dollar amount they charge or the threshold at which they will charge. That’s great for the consumer.

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