Summary
In recent years, retail banking has become a key area of strategic emphasis in the US banking industry, as evidenced by rising trends in retail loan and deposit shares on commercial bank balance sheets and a continuing increase in the number of bank branches. This "return to retail" contrasts with the 1990s, when banks sought to diversify revenues, deemphasize branch networks, and target financial services to a broader range of clients. An analysis of this strategic shift suggests that interest in retail banking fluctuates in predictable ways with the performance of nonretail banking and financial market activities. The recent "return to retail" episode may be more persistent than past cycles because it is being driven almost entirely by the very largest US banks, which have been building large branch networks and investing in other retail banking infrastructure.
See the full content of this document
Extract
The Role of Retail Banking in the U.S. Banking Industry: Risk, Return, and Industry Structure
1. INTRODUCTION
The U.S. banking industry is experiencing renewed interest in retail banking. These activities-broadly defined as the range of products and services provided to consumers and small businesses-have grown in importance over the past several years. Retail-related positions now account for larger shares of commercial bank balance sheets, and the number of bank branches continues to grow. The recent focus on retail contrasts sharply with industry views held during the 1990s, when banks' attention turned to broadening products, diversifying revenues, substituting alternative delivery channels for branches, and offering a multitude of financial services to all types of retail, corporate, and wholesale customers.This "return to retail" is reflected in a greater number of media reports on retail banking activities, in the frequency with which retail banking activities have been mentioned in banks' public statements, and in the attention given to these activities by industry analysts.1 A 2004 report by Standard and Poor's- "Retail Sector Anchors Large Complex Banks in U.S."-and a 2003 Salomon Smith Barney discussion of U.S. banking becoming "refocused on retail" typify the view that retail has become a key area of strategic emphasis in the U.S. banking industry. Indeed, the renewed focus on retail activities seems to have been a key motivation behind a number of recent largebank mergers, such as Bank of America's acquisition of FleetBoston Financial and JPMorgan Chase's acquisition of Bank One.2This article documents the "return in retail" in the U.S. banking industry and offers some insight into why this shift has occurred. Trends in retail loan shares, retail deposit shares, the balance sheets of U.S. consumers, and the number of bank branches all indicate an increased focus on retail activities. We discuss the effect of this focus on individual banks and ask whether the related investment in infrastructure-principally, branch networks-is justified and sustainable for the industry as a whole. We examine a range of external sources: reports by equity analysts, rating agencies, and consulting firms; discussions and data provided by banking companies in annual reports, investor presentations, and other public outlets; and academic research examining various aspects of retail banking.At the bank level, the principal a...See the full content of this document
Sponsored links
