The Return to Retail and the Performance of U.S. Banks

39 Pages Posted: 5 Jan 2006

See all articles by Beverly Hirtle

Beverly Hirtle

Federal Reserve Bank of New York - Banking Studies Department

Kevin J. Stiroh

Federal Reserve Bank of New York

Date Written: December 2005

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.

Keywords: retail banking, bank risk, banking, bank performance, risk and return

JEL Classification: G21, L21, G32

Suggested Citation

Hirtle, Beverly and Stiroh, Kevin J., The Return to Retail and the Performance of U.S. Banks (December 2005). FRB NY Staff Report No. 233. Available at SSRN: https://ssrn.com/abstract=873848 or http://dx.doi.org/10.2139/ssrn.873848

Beverly Hirtle (Contact Author)

Federal Reserve Bank of New York - Banking Studies Department ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-7544 (Phone)
212-720-8363 (Fax)

Kevin J. Stiroh

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
(212) 720-6633 (Phone)
(212) 720-8363 (Fax)

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