"beautiful emergent things that happen... once you get a new capability"
October 21, 2022 2:00 PM Subscribe
Where do banks site their branches, and why? Or: how does deposit insurance work? Or: what does it mean for a transaction to be "final"? Patrick McKenzie discusses these topics and more in his newsletter "Bits about Money: About the modern financial infrastructure that the world sits atop of." He focuses on the US, international networks, and Japan.
Through what turns out to be a simple result of queuing theory, bank branches end up with a lot of parking that appears mostly underutilized almost all of the time, and this is close to optimal.
This is deeply unintuitive but very important. It’s Little's law and every developer of web or transactional services should have it tattooed on their forearm.
posted by sjswitzer at 3:40 PM on October 21, 2022 [5 favorites]
This is deeply unintuitive but very important. It’s Little's law and every developer of web or transactional services should have it tattooed on their forearm.
posted by sjswitzer at 3:40 PM on October 21, 2022 [5 favorites]
These are quite interesting. If you aren't sure where to start, try "The Optimal Amount of Fraud is Nonzero. "
posted by wittgenstein at 6:28 PM on October 21, 2022 [2 favorites]
posted by wittgenstein at 6:28 PM on October 21, 2022 [2 favorites]
Thanks for posting this! Looks like an interesting newsletter to add to my list of finance/banking ones I’m already subbed to.
posted by skycrashesdown at 6:29 PM on October 21, 2022 [1 favorite]
posted by skycrashesdown at 6:29 PM on October 21, 2022 [1 favorite]
Interesting stuff, thanks for posting.
I wonder if the 20-75 year timeframe is getting shorter. The last couple of branches I've seen go up have been in new condo developments, clearly sited to capture that sticky new mortgage money, and in 5-10 years they've been closed or moved, I'm guessing when the new mortgage money dries up.
posted by clawsoon at 6:50 PM on October 21, 2022
I wonder if the 20-75 year timeframe is getting shorter. The last couple of branches I've seen go up have been in new condo developments, clearly sited to capture that sticky new mortgage money, and in 5-10 years they've been closed or moved, I'm guessing when the new mortgage money dries up.
posted by clawsoon at 6:50 PM on October 21, 2022
Is there some context here that I'm missing? Having started with the first link, this guy seems like every other neoliberal shill with an econ degree that I've ever read. Some of his points are just openly, hilariously wrong:
One formal lever for this is the Community Reinvestment Act, but less formal pressure from state or federal banking regulators also heavily informs siting decisions. If a large bank consistently applies only for permission to open branches in upper middle-class neighborhoods, which is often optimal for the bank, they will draw negative attention from their regulators.
Right, that well-known phenomenon of upper-middle-class neighborhoods being underserved by bank branches, and of regulators writing sternly-worded letters to banks who intentionally avoid poor neighborhoods.
And then we pivot to condescendingly smug AND wrong:
One way, often used regarding so-called food deserts, is to drop pins on the map representing consequential retail locations, draw a circle around them, and count who is and is not within one of the circles using census data. This is fairly naive and therefore is much beloved of social scientists, who can get grad students to do it for them.
Interspersed with "you're not wrong, you're just an asshole":
Through what turns out to be a simple result of queuing theory, bank branches end up with a lot of parking that appears mostly underutilized almost all of the time, and this is close to optimal.
Optimal. The only tenants who can afford rents on the main street in my city are banks, who will happily build huge parking lots that are never full. What do they do with this excess capacity, you ask? Why, certainly they'd avoid any deadweight loss from letting the spots sit unused, so they rent them back to the city--wait, nope, they put up "Parking for customers only" signs and make deals with a local towing company who gives them kickbacks for calling in illegally parked cars, even on bank holidays. So, sure. Optimal, for someone.
posted by Mayor West at 7:01 PM on October 21, 2022 [4 favorites]
One formal lever for this is the Community Reinvestment Act, but less formal pressure from state or federal banking regulators also heavily informs siting decisions. If a large bank consistently applies only for permission to open branches in upper middle-class neighborhoods, which is often optimal for the bank, they will draw negative attention from their regulators.
Right, that well-known phenomenon of upper-middle-class neighborhoods being underserved by bank branches, and of regulators writing sternly-worded letters to banks who intentionally avoid poor neighborhoods.
And then we pivot to condescendingly smug AND wrong:
One way, often used regarding so-called food deserts, is to drop pins on the map representing consequential retail locations, draw a circle around them, and count who is and is not within one of the circles using census data. This is fairly naive and therefore is much beloved of social scientists, who can get grad students to do it for them.
Interspersed with "you're not wrong, you're just an asshole":
Through what turns out to be a simple result of queuing theory, bank branches end up with a lot of parking that appears mostly underutilized almost all of the time, and this is close to optimal.
Optimal. The only tenants who can afford rents on the main street in my city are banks, who will happily build huge parking lots that are never full. What do they do with this excess capacity, you ask? Why, certainly they'd avoid any deadweight loss from letting the spots sit unused, so they rent them back to the city--wait, nope, they put up "Parking for customers only" signs and make deals with a local towing company who gives them kickbacks for calling in illegally parked cars, even on bank holidays. So, sure. Optimal, for someone.
posted by Mayor West at 7:01 PM on October 21, 2022 [4 favorites]
Is there some context here that I'm missing?
Not really? The author spent some time as an ESL teacher in Japan, transitioned to software consulting on web analytics / marketing, and wrote a bunch of blog posts on related topics that the Hacker News crowd (tech startups) read with fervor. While he typically posted about applying techniques to his toy side projects, apparently he had some Japanese banks as clients, and parleyed that plus his (niche) name recognition into a career at Stripe.
Right, that well-known phenomenon of upper-middle-class neighborhoods being underserved by bank branches, and of regulators writing sternly-worded letters to banks who intentionally avoid poor neighborhoods.
I don't think you and Patrick are all that different in perspective -- I took his blog posts as explaining why the system puts banks in already saturated neighborhoods and avoids others, rather than uncritically endorsing the outcome.
Optimal, for someone.
That is very much his point. The branch bank is optimizing for a limited set of customers, to the detriment of others. He makes it pretty explicit in the first branch banking post:
posted by pwnguin at 11:28 PM on October 21, 2022 [5 favorites]
Not really? The author spent some time as an ESL teacher in Japan, transitioned to software consulting on web analytics / marketing, and wrote a bunch of blog posts on related topics that the Hacker News crowd (tech startups) read with fervor. While he typically posted about applying techniques to his toy side projects, apparently he had some Japanese banks as clients, and parleyed that plus his (niche) name recognition into a career at Stripe.
Right, that well-known phenomenon of upper-middle-class neighborhoods being underserved by bank branches, and of regulators writing sternly-worded letters to banks who intentionally avoid poor neighborhoods.
I don't think you and Patrick are all that different in perspective -- I took his blog posts as explaining why the system puts banks in already saturated neighborhoods and avoids others, rather than uncritically endorsing the outcome.
Optimal, for someone.
That is very much his point. The branch bank is optimizing for a limited set of customers, to the detriment of others. He makes it pretty explicit in the first branch banking post:
The typical full-service bank branch costs about $20 million to put into service, with running costs near $1 million a year, and for this… it will generate about 300 new deposit accounts and a roughly similar number of loans [...]
But most of the retail deposit base is, structurally, older, wealthier depositors who are at or near retirement. In a real sense, the branch exists for them and your ability to use it is a courtesy. [...] retail banking is a star search model: the median relationship isn’t nearly as important to the bank as their top 10-20% of retail relationships are.
posted by pwnguin at 11:28 PM on October 21, 2022 [5 favorites]
I took his blog posts as explaining why the system puts banks in already saturated neighborhoods and avoids others, rather than uncritically endorsing the outcome.
If that is the case, I'd advise him to be more careful with his language. Reading "this is optional" gives rather a different impression to "this is optional for the bank". Yes, you'd be specifying that is for the bank a lot, but that's kinda the necessary point if you don't think that's the same as optimal full stop.
posted by Dysk at 12:54 AM on October 22, 2022
If that is the case, I'd advise him to be more careful with his language. Reading "this is optional" gives rather a different impression to "this is optional for the bank". Yes, you'd be specifying that is for the bank a lot, but that's kinda the necessary point if you don't think that's the same as optimal full stop.
posted by Dysk at 12:54 AM on October 22, 2022
5-10 years they've been closed or moved, I'm guessing when the new mortgage money dries up.
Commercial leases are usually 10 years and I’ve seen branch after branch close right as the 10 year mark is hit, especially if the bank merged with one that really doesn’t like to have physical branches (I.e. CapitalOne).
posted by jmauro at 1:31 AM on October 22, 2022
Commercial leases are usually 10 years and I’ve seen branch after branch close right as the 10 year mark is hit, especially if the bank merged with one that really doesn’t like to have physical branches (I.e. CapitalOne).
posted by jmauro at 1:31 AM on October 22, 2022
If that is the case, I'd advise him to be more careful with his language. Reading "this is optional" [sic]
Captain, I'm detecting a massive ironic surge off the port bow
posted by Merus at 3:03 AM on October 22, 2022 [7 favorites]
Captain, I'm detecting a massive ironic surge off the port bow
posted by Merus at 3:03 AM on October 22, 2022 [7 favorites]
The word "optimal" is always contextual. Whenever you say "x is optimal" there's always an implicit or explicit "for these concerns in this context."
posted by signal at 5:05 AM on October 22, 2022 [2 favorites]
posted by signal at 5:05 AM on October 22, 2022 [2 favorites]
I think you're misreading the quote you posted Mayor West.
One formal lever for this is the Community Reinvestment Act, but less formal pressure from state or federal banking regulators also heavily informs siting decisions. If a large bank consistently applies only for permission to open branches in upper middle-class neighborhoods, which is often optimal for the bank, they will draw negative attention from their regulators.
With no regulation banks will optimize for the bank which means branches in upper-middle-class neighborhoods. The Community Reinvestment Act (CRA) is one lever the government has to prevent that from happening by requiring banks to serve all the communities in it's footprint.
How effective it is at achieving that is another matter but I the bank I work for is in the process of acquiring another bank and the CRA comes up almost every time that acquisition is mentioned.
posted by VTX at 7:17 AM on October 22, 2022 [1 favorite]
One formal lever for this is the Community Reinvestment Act, but less formal pressure from state or federal banking regulators also heavily informs siting decisions. If a large bank consistently applies only for permission to open branches in upper middle-class neighborhoods, which is often optimal for the bank, they will draw negative attention from their regulators.
With no regulation banks will optimize for the bank which means branches in upper-middle-class neighborhoods. The Community Reinvestment Act (CRA) is one lever the government has to prevent that from happening by requiring banks to serve all the communities in it's footprint.
How effective it is at achieving that is another matter but I the bank I work for is in the process of acquiring another bank and the CRA comes up almost every time that acquisition is mentioned.
posted by VTX at 7:17 AM on October 22, 2022 [1 favorite]
We many different finality notions in law, regular databases, and distributed systems, among which enough wind up useful for mostly unrelated reasons. It's true bitcoiners have stupidly confused distributed system finality for something else, which warrants harsh criticism, but..
It's a disingenuous straw-man to claim "finality in crypto-currency is a bug, not a feature" though because "in crypto-currency" the word "finality" almost exclusively refers to the voting process used by a distributed system, mostly Byzantine agreement flavors but maybe proof-of-work stupidity too.
We do clearly need transaction reversibility in high value situations. It's a stupid cultural "bug" that bitcoiners reject this, but those idiots even dislike essential software upgrade. Afaik all the proof-of-stake "ETH killers" need some upgrade path, so they de facto have a governance that could reverse transactions if compelled by (enough) governments, and the smart ones give users better options.
At the same time, we do not want reversibility in vastly more situations: I'm often annoyed by "bugs" in duolingo questions, but there is no "bug" in duolingo not giving me back lost points or whatever, and it's definitely not a "bug" in the acknowledgement procedure for duolingo's database writes. I did not exchange a 13 EUR train ticket yesterday, due to the fee being 10 EUR.
posted by jeffburdges at 1:57 AM on October 23, 2022
It's a disingenuous straw-man to claim "finality in crypto-currency is a bug, not a feature" though because "in crypto-currency" the word "finality" almost exclusively refers to the voting process used by a distributed system, mostly Byzantine agreement flavors but maybe proof-of-work stupidity too.
We do clearly need transaction reversibility in high value situations. It's a stupid cultural "bug" that bitcoiners reject this, but those idiots even dislike essential software upgrade. Afaik all the proof-of-stake "ETH killers" need some upgrade path, so they de facto have a governance that could reverse transactions if compelled by (enough) governments, and the smart ones give users better options.
At the same time, we do not want reversibility in vastly more situations: I'm often annoyed by "bugs" in duolingo questions, but there is no "bug" in duolingo not giving me back lost points or whatever, and it's definitely not a "bug" in the acknowledgement procedure for duolingo's database writes. I did not exchange a 13 EUR train ticket yesterday, due to the fee being 10 EUR.
posted by jeffburdges at 1:57 AM on October 23, 2022
I'm in my 30s and I've never set foot in a bank. I've always done online banking, since my earliest jobs in high school. Even when I needed a cashier's check to buy my house, everything was done online.
What does one do in a physical bank, anyway? Genuine question. I did once live in a neighborhood with lots of payday loan places but that's different. (Or maybe not.) And the physical bank branches I see now, the ones with "for customers only" parking, are as dead as the mall or that 1-Hr Photo place that I'm pretty sure is a front (because again, who uses a place like that in 2022).
posted by basalganglia at 6:45 AM on October 23, 2022
What does one do in a physical bank, anyway? Genuine question. I did once live in a neighborhood with lots of payday loan places but that's different. (Or maybe not.) And the physical bank branches I see now, the ones with "for customers only" parking, are as dead as the mall or that 1-Hr Photo place that I'm pretty sure is a front (because again, who uses a place like that in 2022).
posted by basalganglia at 6:45 AM on October 23, 2022
What does one do in a physical bank, anyway?
Open accounts
Buy foreign currency
Deposit all that change that builds up in your house
Purchase a cashier's check
Sign mortgage documents
Get nice looking cash for birthday cards
posted by soelo at 7:12 AM on October 23, 2022
Open accounts
Buy foreign currency
Deposit all that change that builds up in your house
Purchase a cashier's check
Sign mortgage documents
Get nice looking cash for birthday cards
posted by soelo at 7:12 AM on October 23, 2022
Huh. I do literally all those things with ATMs or online banking. Except depositing change, as I rarely handle cash these days -- though what's this about fancy cash for birthday cards? Is that something different than the $20 that spits out of an ATM?
I wonder if this is a generational thing, like writing checks (I'm still on my first set of checks from when I opened my account 15 years ago). Maybe we should preserve one of these bank branches as a sort of living history museum, so that whippersnappers like me can wander through and marvel at how people used to do things in the old days. I bet "bank as museum" would fill the parking lot better than "bank as bank."
posted by basalganglia at 7:48 AM on October 23, 2022 [1 favorite]
I wonder if this is a generational thing, like writing checks (I'm still on my first set of checks from when I opened my account 15 years ago). Maybe we should preserve one of these bank branches as a sort of living history museum, so that whippersnappers like me can wander through and marvel at how people used to do things in the old days. I bet "bank as museum" would fill the parking lot better than "bank as bank."
posted by basalganglia at 7:48 AM on October 23, 2022 [1 favorite]
What does one do in a physical bank, anyway?
Two months ago I had to acquire a cashier's check to pay rent with because of a dumb and pointless fuckup in automatic payments that left all parties looking dumb. My current bank only does cashiers checks in person.
But much more arcanely, the US treasury's portal for the general public is so bad it motivated a mefite to document all the ills on Wikipedia. Good luck getting a medallion signature online. I'm probably going to have to lean on concierge banking to switch checking accounts with TreasuryDirect, even though medallion signatures shouldn't even be a thing at all.
posted by pwnguin at 2:51 PM on October 24, 2022
Two months ago I had to acquire a cashier's check to pay rent with because of a dumb and pointless fuckup in automatic payments that left all parties looking dumb. My current bank only does cashiers checks in person.
But much more arcanely, the US treasury's portal for the general public is so bad it motivated a mefite to document all the ills on Wikipedia. Good luck getting a medallion signature online. I'm probably going to have to lean on concierge banking to switch checking accounts with TreasuryDirect, even though medallion signatures shouldn't even be a thing at all.
posted by pwnguin at 2:51 PM on October 24, 2022
though what's this about fancy cash for birthday cards?
In my culture, it's not just birthdays (which is less urgent in my mind, subsequently if there's a child relative that I'm obliged to do this, they'll get whatever note I have) but for select festivals e.g. Chinese New Year and Eid for me. So what happens is you prepare a stack of money packets (i.e. angpow/hong bao/duit raya) and it's nice when it's all fresh and crisp and usually it's the same denomination, so it's very common to see people queue as the season approaches to get fresh stacks of bills for them.
I also don't to to the counter regularly (especially as this isn't really a cheque-using culture anymore) but we do have something like a government-backed retail investment products, and online withdrawals are limited in amount, but physical withdrawals is unlimited if you pair it with a deposit request to your savings account. But consequently, counter services are very fast these days - it's either services like mine or loan inquiries.
posted by cendawanita at 5:54 PM on October 24, 2022
In my culture, it's not just birthdays (which is less urgent in my mind, subsequently if there's a child relative that I'm obliged to do this, they'll get whatever note I have) but for select festivals e.g. Chinese New Year and Eid for me. So what happens is you prepare a stack of money packets (i.e. angpow/hong bao/duit raya) and it's nice when it's all fresh and crisp and usually it's the same denomination, so it's very common to see people queue as the season approaches to get fresh stacks of bills for them.
I also don't to to the counter regularly (especially as this isn't really a cheque-using culture anymore) but we do have something like a government-backed retail investment products, and online withdrawals are limited in amount, but physical withdrawals is unlimited if you pair it with a deposit request to your savings account. But consequently, counter services are very fast these days - it's either services like mine or loan inquiries.
posted by cendawanita at 5:54 PM on October 24, 2022
What does one do in a physical bank, anyway?
Prior to yesterday, I would have said some things are just easier to deal with face to face. However, here is how my last 8/9 days went:
Last Monday: received text message from my credit card co saying they suspected a fraudulent charge. Verified fraud by typing YES. Received reply saying check your statement for any other potential fraud. Went online and saw ~$400 dollars in other fraudulent charges, all from same company. Called cc co. Less than 15 minutes later, charges were all reversed. They cancelled my card and issued a new one. Said it could be mailed which would show in 2-3 days or sent via UPS which would be next day, but may require signature. Seeing as it was fraud and I'm 90% WFH, I chose UPS both to have it earlier, and to make sure it was not intercepted.
Checked my online statement for my local credit union for unrelated reasons and saw SAME COMPANY had posted bad charges to my debit card. (MERCARI is the devil, y'all).
Last Tuesday: During work hours, made the 15 minute drive to credit union, 15 minute wait to speak to rep, only to be told they wouldn't be able to reverse charges on any thing less than $40. But, I'm in luck! (????) Since all the bad charges came from the same company, they could "ask" accounting to group them together as one charge. Their credit card printing machine was down, but assured me if it didn't get fixed "that day", it would definitely be back up "the next day" and they would mail it.
Yesterday: Still had not received my card. Made the 15 minute drive AGAIN, waited another 15 minutes only to talk to a teller (who I could have walked right up to see), who told me the machine was STILL down and would not be back up until Friday (three more days). I could drive to the main branch, if I wanted to, and get one there. As I need to pay bills, I did the hour round trip drive to wait another 15 minutes to be told to go to the teller who already had the debit card ready.
*sheesh*
I was going to brag about the other CU I am with who refinanced my auto loan from 7.2% to 2.7% and I straight up don't think I would get that without a local CU. But, then, I realized the refi was all done completely online. I average about one visit a year to that CU.
So, your question raises a very solid point.
posted by a non mouse, a cow herd at 10:05 AM on October 26, 2022
Prior to yesterday, I would have said some things are just easier to deal with face to face. However, here is how my last 8/9 days went:
Last Monday: received text message from my credit card co saying they suspected a fraudulent charge. Verified fraud by typing YES. Received reply saying check your statement for any other potential fraud. Went online and saw ~$400 dollars in other fraudulent charges, all from same company. Called cc co. Less than 15 minutes later, charges were all reversed. They cancelled my card and issued a new one. Said it could be mailed which would show in 2-3 days or sent via UPS which would be next day, but may require signature. Seeing as it was fraud and I'm 90% WFH, I chose UPS both to have it earlier, and to make sure it was not intercepted.
Checked my online statement for my local credit union for unrelated reasons and saw SAME COMPANY had posted bad charges to my debit card. (MERCARI is the devil, y'all).
Last Tuesday: During work hours, made the 15 minute drive to credit union, 15 minute wait to speak to rep, only to be told they wouldn't be able to reverse charges on any thing less than $40. But, I'm in luck! (????) Since all the bad charges came from the same company, they could "ask" accounting to group them together as one charge. Their credit card printing machine was down, but assured me if it didn't get fixed "that day", it would definitely be back up "the next day" and they would mail it.
Yesterday: Still had not received my card. Made the 15 minute drive AGAIN, waited another 15 minutes only to talk to a teller (who I could have walked right up to see), who told me the machine was STILL down and would not be back up until Friday (three more days). I could drive to the main branch, if I wanted to, and get one there. As I need to pay bills, I did the hour round trip drive to wait another 15 minutes to be told to go to the teller who already had the debit card ready.
*sheesh*
I was going to brag about the other CU I am with who refinanced my auto loan from 7.2% to 2.7% and I straight up don't think I would get that without a local CU. But, then, I realized the refi was all done completely online. I average about one visit a year to that CU.
So, your question raises a very solid point.
posted by a non mouse, a cow herd at 10:05 AM on October 26, 2022
Captain, I'm detecting a massive ironic surge off the port bow
Fair cop, but I'm just making a quick remark in a comments section on my phone, not publishing an article on my website.
posted by Dysk at 10:13 AM on October 26, 2022
Fair cop, but I'm just making a quick remark in a comments section on my phone, not publishing an article on my website.
posted by Dysk at 10:13 AM on October 26, 2022
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