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The role of retail banking in the U.S. banking industry: risk, return, and industry structure

Author

Listed:
  • Timothy Clark
  • Astrid A. Dick
  • Beverly Hirtle
  • Kevin J. Stiroh
  • Robard Williams

Abstract

The U.S. banking industry is experiencing a renewed interest in retail banking, broadly defined as the range of products and services provided to consumers and small businesses. This article documents the “return to retail” in the U.S. banking industry and offers some insight into why the shift has occurred. At the bank level, the principal attraction of retail banking seems to be the belief that its revenues are stable and thus can offset volatility in nonretail businesses. At the industry level, the authors show that interest in retail activities fluctuates in rather predictable ways with the performance of nonretail banking and financial market activities. They document the features that the recent “return to retail” has in common with past cycles, but also identify factors suggesting that this episode may be more persistent. The most important of these factors is the role of large banks: this retail banking cycle is being driven almost entirely by the very largest U.S. banking firms. The key role of very large banks gives extra weight to this retail banking episode.

Suggested Citation

  • Timothy Clark & Astrid A. Dick & Beverly Hirtle & Kevin J. Stiroh & Robard Williams, 2007. "The role of retail banking in the U.S. banking industry: risk, return, and industry structure," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 39-56.
  • Handle: RePEc:fip:fednep:y:2007:i:dec:p:39-56:n:v.13no.3
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    Citations

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    Cited by:

    1. DeYoung, Robert & Torna, Gökhan, 2013. "Nontraditional banking activities and bank failures during the financial crisis," Journal of Financial Intermediation, Elsevier, vol. 22(3), pages 397-421.
    2. Temesvary, Judit, 2015. "Dynamic branching and interest rate competition of commercial banks: Evidence from Hungary," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 98-110.
    3. Barry Williams & Laurie Prather, 2010. "Bank risk and return: the impact of bank non-interest income," International Journal of Managerial Finance, Emerald Group Publishing, vol. 6(3), pages 220-244, June.
    4. World Bank, 2007. "Brazil : The Industry Structure of Banking Services," World Bank Other Operational Studies 7668, The World Bank.
    5. Andrew Cohen & Michael Mazzeo, 2010. "Investment Strategies and Market Structure: An Empirical Analysis of Bank Branching Decisions," Journal of Financial Services Research, Springer;Western Finance Association, vol. 38(1), pages 1-21, August.
    6. Urdapilleta, Eduardo & Stephanou, Constantinos, 2009. "Banking in Brazil: Structure, Performance, Drivers, and Policy Implications," Policy Research Working Paper Series 4809, The World Bank.
    7. Hamid Mehran & Joshua V. Rosenberg, 2007. "The effect of employee stock options on bank investment choice, borrowing, and capital," Staff Reports 305, Federal Reserve Bank of New York.
    8. Fernando Alvarez & Andrew Atkeson & Chris Edmond, 2009. "Sluggish Responses of Prices and Inflation to Monetary Shocks in an Inventory Model of Money Demand," The Quarterly Journal of Economics, Oxford University Press, vol. 124(3), pages 911-967.
    9. Hsu, Sara, 2012. "The US financial system, the great recession, and the “speculative spread”," MPRA Paper 38478, University Library of Munich, Germany.
    10. Williams, Barry, 2016. "The impact of non-interest income on bank risk in Australia," Journal of Banking & Finance, Elsevier, vol. 73(C), pages 16-37.
    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. Hirtle, Beverly & Kovner, Anna & Vickery, James & Bhanot, Meru, 2016. "Assessing financial stability: The Capital and Loss Assessment under Stress Scenarios (CLASS) model," Journal of Banking & Finance, Elsevier, vol. 69(S1), pages 35-55.

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