Staff Reports
The Return to Retail and the Performance of U.S. Banks
December 2005 Number 233
JEL classification: G21, L21, G32

Authors: Beverly J. Hirtle and Kevin J. Stiroh

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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For a published version of this report, see Beverly Hirtle and Kevin Stiroh, "The Return to Retail and the Performance of U.S. Banks," Journal of Banking and Finance 31, no. 4 (April 2007): 1101-33.