The establishment of branch banks diminishes very much the number of correspondents which an institution needs to have, and may make it possible to entirely dispense with them. If a bank establishes a branch office in all or most of the localities in which it has occasion to transact business, it can issue its drafts and send its checks to its own branches instead of employing other banks to act for it. To what extent this system dispenses with correspondents depends, of course, upon the number and distribution of the branches. Branch banks are rarely established simply for the purpose of serving as a means of transferring funds from one part of the country to another. They are designed primarily as a means of extending the parent bank's business, and their use as an intermediary in the exchange of checks and drafts is, thus, secondary, but none the less efficient. Where branches do not exist, correspondents can, of course, be employed.
The branch-bank system has been developed to a high degree in many foreign countries. In England, France, and Germany, for example, great centralized institutions have been developed which are the leaders in the commerce of their respective countries, and by means of their numerous branches are able to transact a large part of the exchanges of the country. In Italy, Austria, the Scandinavian countries, Holland, Belgium, and Canada, too, large banks with numerous branches are the rule. In all of these cases, however, foreign business is transacted chiefly through correspondents, the English institutions being the only ones that have extended their branches to any considerable extent outside of the home country.
In the United States the branch-bank system is not widely extended, indeed is scarcely employed at all. Instead we have a very large number of independent institutions, and the system of conducting the domestic exchanges by means of correspondents is consequently generally used. The branch-bank system possesses very many advantages, particularly in the direction of furnishing banking facilities for small towns and sparsely settled regions, and it seems probable that the future will witness a considerable extension of this system even in the United States.