Strategy and Business Models in Retail Banking: Why Should They Matter Also to Supervisors?

Retail banking is a distinct part of the bank industry. It has been undertaking important changes in the last decades mainly due to technological innovations and deregulation. Many internal and external factors have accrued over this time and as a consequence of this, its strategic focus shifted towards a more open competition and a strongly diversified market in terms of products and services offered. The recent financial crisis has led to a re-thinking of financial regulation and supervision and from this a one major lesson has also been that supervisors should be asking the big questions in the area of business models and corporate strategies. The crisis has shown that bank failures can often be related to fundamental problems in these areas. Focusing on this issue means going far beyond the traditional approach to prudential supervision, which mainly focuses on the adequacy of bank capital, liquidity and risk management. The analysis of business models implies a different approach to risk, starting from understanding bank activities, customer groups, distribution channels and sources of profits.