The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
The Outreach & Education function engages, empowers and educates the public in the Second District. Our outreach mission furthers the Bank’s commitment to the region by listening to the communities we serve and developing programs, analysis and sponsored conferences and clinics to help meet their needs. Our education mission aims to advance public knowledge about the Federal Reserve System and its role in the economy.
In the 1990s, the U.S. banking industry focused largely on diversifying revenues, deemphasizing branch networks, and targeting financial services to a broader range ofclients.
Today, the industry is experiencing a “return to retail.” This renewed interest in retail banking is evident in the rising trends in retail loan and deposit shares on commercial bank balance sheets, a shift in household assets toward bank deposits, and a continuing increase in the number of bank branches. Media reports, bank financial statements, and the attention paid by industry analysts also point to banks’ increased emphasis on retail activities.
Clark et al. document this strategic shift among U.S. banks and offer insight into why the change has occurred.
The authors observe that the principal attraction of retail banking at the bank level appears to be the view that its revenues are stable, so it can offset volatility in nonretail businesses. At the industry level, interest in retail activities fluctuates in predictable ways with the performance of nonretail banking and financial market activities.
The article identifies similarities between the recent “return to retail” and past cycles. It argues that the current episode may be more persistent than others mainly because it is being driven almost entirely by the very largest U.S. banking firms, which have been building large branch networks and investing in other retail banking infrastructure.
According to the authors, branching deregulation in the 1990s enabled large banks to compete more effectively with smaller local institutions by establishing branch networks spanning large geographic areas. Technological innovation may also have increased scale economies in key retail banking activities, such as small business lending.
About the Authors
Timothy Clark is an assistant vice president, Beverly Hirtle a senior vice president, and Robard Williams a vice president at the Federal Reserve Bank of New York; Astrid Dick was an economist and Kevin J. Stiroh a vice president at the Bank at the time the article was written.
The views expressed in this summary are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System.