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

Retail banking is a distinct part of the banking industry. It has been undergoing important changes in recent 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 has shifted towards 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. From this, one major lesson has been that supervisors should be asking the big questions 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 banking activities, customer groups, distribution channels, and sources of profits