Importance of Retail Banking Relationships; FDIC Center for Financial Research Working Paper, No. 2007-05

摘要

While the importance of bank-firm relationships is well documented in the banking literature, there is relatively little research on the importance of retail banking relationships. In this paper we collect proprietary data from multiple sources to analyze the importance of retail banking relationships in an experimental setting where commercial banks have depositors and also underwrite securities. We are able to distinguish between the lead banks own retail clientele vis-a-vis other retail clientele to ask if lead banks take advantage of their retail investors to dump lemons or whether their retail investors benefit from getting higher allocation of underpriced issues. We provide evidence that lead underwriters retail customers demand more of the highly underpriced issues and end up with a higher allocation of underpriced issues. We use grey market prices to show that it is actual underpricing over and beyond that predicted by the grey market that drives the differential demand from the lead bank retail clientele. This is consistent with the bank passing on information about underpriced IPOs to their retail clientele and encouraging them to demand more of such issues. We next analyze the underlying incentives of the bank to treat their retail clientele well by examining cross-selling potential from other services of the bank by accessing data from the Central Bank.