Do you ever wonder why there are so many bank branches and buildings owned by banks?
The answer turns out to be very simple. It has to do with the particularly strange way that banks do their accounting.
If you are a depositor at a bank, the amount of your deposit, the balance in your checking account at any moment, is counted as a liability on the bank’s financial statement. The reason it is treated as a liability is that you have the power to remove it at any time for any whim. That is the definition of a liability. The bank owes you your money and you can collect it when you want.
On the other hand if you borrow money from the bank, let's say a mortgage, the bank is counting on you for 30 years to make payments on that mortgage. From the bank’s point of view your mortgage with its associated payments is an asset of the bank.
In reality the bank makes most of its loans to corporations that get reviewed and renewed every year. These corporate loans can be paid back at any point but the bank doesn't see it this way. The bank sees the loan as a medium-term asset that it uses to generate income.
Among the many assets of the bank, in addition to cash on reserve with the Federal Reserve Bank, is its real estate. Since real estate can be sold quite readily as opposed to corporate loans in the bank's portfolio, the bank sees its real estate assets as more liquid and more desirable than anything other than cash.
For the bank's asset package to look more appealing, the bank buys more property, it opens more branches and it therefore creates a larger part of its asset portfolio that is nearly liquid.
I have long argued, in these blogs, that Federal insurance should be applied to bank loans, not deposits. If businesses were certain that their loans would not be sold-off or called-in unless their actual asset value declined, businesses would be much more able to run and expand in difficult economic periods.
I hope that explains why banks are so aggressive in adding real estate in the form of branches to their portfolio.