A study forthcoming in the Federal Reserve Bank of New York’s Economic Policy Review, The Role of Retail Banking in the U.S. Banking Industry: Risk, Return, and Industry Structure, concludes that the industry’s recent emphasis on retail banking is driven almost entirely by the very largest U.S. banks and that it may be more persistent than in past cycles.
Rising retail loan and deposit shares on commercial bank balance sheets and a continuing increase in the number of bank branches are two measures of the enhanced importance of retail banking since the early 2000s, according to authors Timothy Clark, Astrid Dick, Beverly Hirtle, Kevin Stiroh, and Robard Williams. This stands in contrast to the trends in the 1990s, when banks sought to diversify revenues, deemphasize branch networks, and target financial services to a broader range of clients.
Retail banking is the range of products and services offered to consumers and small businesses. The authors conclude that this ongoing “return to retail” strategy may be more persistent than in past cycles because of the substantial resource commitments of the very largest banks, which responded to the branch deregulation of the 1990s by building up branch networks across large geographic areas as well as making investments in other retail banking infrastructure
Timothy Clark is an assistant vice president at the Federal Reserve Bank of New York; Astrid Dick, formerly an economist at the Bank, is an assistant professor of economics at INSEAD; Beverly Hirtle is a senior vice president and Kevin Stiroh and Robard Williams are vice presidents at the Federal Reserve Bank of New York.