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The return to retail and the performance of U.S. banks

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  • Beverly J. Hirtle
  • Kevin J. Stiroh

Abstract

The U.S. banking industry is experiencing a renewed focus on retail banking, a trend often attributed to the stability and profitability of retail activities. This paper examines the impact of banks' retail intensity on performance from 1997 to 2004 by developing three complementary definitions of retail intensity (retail loan share, retail deposit share, and branches per dollar of assets) and comparing these measures with both equity market and accounting measures of performance. We find that an increased focus on retail banking across U.S. banks is linked to significantly lower equity market and accounting returns for all banks but lower volatility for only the largest banking companies. We conclude that retail banking may be a relatively stable activity, but it is also a low-return one.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 233.

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Date of creation: 2005
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Handle: RePEc:fip:fednsr:233

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Keywords: Banks and banking ; Retail trade ; Bank profits;

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  8. Stiroh, Kevin J, 2004. "Diversification in Banking: Is Noninterest Income the Answer?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 36(5), pages 853-82, October.
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Cited by:
  1. Sarah Sanya & Simon Wolfe, 2011. "Can Banks in Emerging Economies Benefit from Revenue Diversification?," Journal of Financial Services Research, Springer, Springer, vol. 40(1), pages 79-101, October.
  2. Sufian, Fadzlan & Habibullah, Muzafar Shah, 2012. "Globalizations and bank performance in China," Research in International Business and Finance, Elsevier, Elsevier, vol. 26(2), pages 221-239.
  3. repec:hal:wpaper:hal-00598136 is not listed on IDEAS
  4. Kondo, Kazumine, 2014. "Cross-Prefecture Expansion of Regional Banks in Japan and Its Effects on Lending-Based Income," MPRA Paper 52978, University Library of Munich, Germany.
  5. Dicembrino, Claudio & Scandizzo, Pasquale Lucio, 2011. "Can portfolio diversification increase systemic risk? evidence from the U.S and European mutual funds market," MPRA Paper 33715, University Library of Munich, Germany.
  6. Hasan, Iftekhar & Schmiedel, Heiko & Song, Liang, 2009. "Return to retail banking and payments," Working Paper Series, European Central Bank 1135, European Central Bank.
  7. Tsai, Jeng-Yan, 2013. "Optimal bank interest margins under capital regulation in a call-option utility framework," Economic Modelling, Elsevier, vol. 31(C), pages 557-565.
  8. Baele, Lieven & De Jonghe, Olivier & Vander Vennet, Rudi, 2007. "Does the stock market value bank diversification?," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 1999-2023, July.
  9. Tsai, Jeng-Yan & Chang, Chuen-Ping, 2012. "Call-pricing equity returns and default risks of entry mode with brand perception in retail banking," International Review of Economics & Finance, Elsevier, Elsevier, vol. 21(1), pages 29-41.
  10. Albert, Stéphane & Alexandre, Hervé, 2013. "Banks’ Earnings: an empirical evidence of the influence of economic and financial markets factors," Economics Papers from University Paris Dauphine 123456789/10353, Paris Dauphine University.
  11. Goddard, John & McKillop, Donal & Wilson, John O.S., 2008. "The diversification and financial performance of US credit unions," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1836-1849, September.
  12. Fadzlan Sufian & Muzafar Shah Habibullah, 2010. "Developments in the efficiency of the Thailand banking sector: a DEA approach," International Journal of Development Issues, Emerald Group Publishing, Emerald Group Publishing, vol. 9(3), pages 226-245, July.
  13. Carbo Valverde, Santiago & Rodriguez Fernandez, Francisco, 2007. "The determinants of bank margins in European banking," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 2043-2063, July.
  14. Saoussen Ben Gamra & Dominique Plihon, 2011. "Revenue diversification in emerging market banks: implications for financial performance," CEPN Working Papers, HAL hal-00598136, HAL.
  15. Fadzlan Sufian & Muzafar Habibullah, 2009. "Bank specific and macroeconomic determinants of bank profitability: Empirical evidence from the China banking sector," Frontiers of Economics in China, Springer, Springer, vol. 4(2), pages 274-291, June.
  16. Beverly Hirtle, 2005. "The impact of network size on bank branch performance," Staff Reports, Federal Reserve Bank of New York 211, Federal Reserve Bank of New York.
  17. L. Baele & V. De Bruyckere & O. De Jonghe & R. Vander Vennet, 2012. "Do Stock Markets Discipline US Bank Holding Companies: Just Monitoring, or also In?uencing?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium, Ghent University, Faculty of Economics and Business Administration 12/827, Ghent University, Faculty of Economics and Business Administration.
  18. Sarkisyan, Anna & Casu, Barbara, 2013. "Retained interests in securitisations and implications for bank solvency," Working Paper Series, European Central Bank 1538, European Central Bank.
  19. World Bank, 2007. "Brazil : The Industry Structure of Banking Services," World Bank Other Operational Studies 7668, The World Bank.
  20. Sufian, Fadzlan & Zulkhibri, Muhamed, 2011. "The Nexus between Economic Freedom and Islamic Bank Performance in the MENA Banking Sectors," MPRA Paper 51285, University Library of Munich, Germany.

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