"The 'Network Effect' Persists Even in the Age of Electronic Banking" and "100人カイギ" are two seemingly unrelated topics, but upon closer examination, they share a common thread - the power of connections and networks.

"The 'Network Effect' Persists Even in the Age of Electronic Banking" and "100人カイギ" are two seemingly unrelated topics, but upon closer examination, they share a common thread - the power of connections and networks.

In the age of electronic banking, where transactions can be done with a click of a button, one might assume that the concept of the network effect is no longer relevant. However, the network effect continues to play a significant role in the banking industry. Financial institutions with large branch networks have a distinct advantage, as the average deposit size per branch increases with the number of branches.

This phenomenon can be explained by the fact that each additional branch added by a financial institution provides a lift to all its preexisting branches in the market. The branches benefit from the network effect, as they capture a disproportionate share of market deposits. This is why financial institutions have historically pursued concentrated deployment strategies, opting for a higher number of branches in a single market rather than spreading them across multiple markets.

The importance of the network effect is further highlighted by the findings of studies conducted in 2004 and 2010. These studies discovered significant positive correlations between network size and average branch size in various metropolitan areas. In 44 of the top 50 metros, a positive relationship between network size and average branch size was statistically significant. In 25 of those markets, the correlation was particularly strong.

Interestingly, there were exceptions to the rule. Some community banks maintained lending levels and deposit funding needs despite the larger banks reducing leverage ratios and focusing on problem loan resolution rather than asset growth. These community banks were able to maintain their position by prioritizing fiscal responsibility over location convenience. Some consumers even migrated from larger banks to smaller ones during the financial crisis, rewarding those banks that exhibited responsible financial practices.

For smaller banks operating in a single market, it is crucial to recognize that the network effect not only applies at the metropolitan area level but also at the corridor level. Instead of scattering branches throughout an entire metro area, it is more beneficial to build a cohesive network in one or two corridors while ceding others entirely. This strategy will yield increased per-branch deposits and leverage the power of the network effect.

While the network effect holds true in markets across the country, its strength may vary. Markets with strong legacies of thrifts and mutual savings banks tend to show lower correlations. This is because institutions in that sector of the industry lean more towards rate-based, branch-light operating models. Nevertheless, the statistical evidence overwhelmingly suggests that larger branch networks are more efficient from a balances-per-branch standpoint.

In conclusion, the power of networks and connections cannot be underestimated, whether it is in the banking industry or in building communities like "100人カイギ." Both concepts emphasize the importance of building cohesive networks and leveraging the benefits that come with them.

Actionable Advice:

1. For financial institutions, consider concentrating your branch networks in specific markets or corridors rather than scattering them across a wide area. This will help maximize the network effect and increase per-branch deposits.
2. Smaller banks operating in a single market should prioritize building a cohesive network in one or two corridors while ceding others entirely. This strategy will yield increased per-branch deposits and leverage the power of the network effect.
3. Recognize the varying strength of the network effect in different markets. Markets with strong legacies of thrifts and mutual savings banks may exhibit lower correlations. Adjust your strategies accordingly to account for these differences.

In both the banking industry and community-building efforts, the power of networks and connections can lead to significant advantages. By understanding and harnessing the network effect, institutions and communities can thrive in the age of electronic banking and beyond.