A simple model of retail banking: a liquidity-providing perspective

Abstract

The banking industry is experiencing a renewed focus on retail banking, a trend often attributed to the stability and profitability of retail activities. This article examines the impact of retail banking on performance by liquidity providing and branch network strategies. Our findings suggest that the bank will use cost-minimizing electronic technology to provide liquidity and external financing, which is linked with high bank interest margins but low default risk in bank equity returns.

Notes

¹ Clark et al. (2007) demonstrate several banks, such as Bank of American, Citigroup, JPMorgan Chase and Wells Fargo and Co., describe their own retail banking businesses.

² This model uses the common framework of a similar model by Kashyap et al. (2002). However, they do not consider the characteristics of the delivery channels linking customers with products.