Viewing customers on the basis of age groupings is valuable in terms of product development, promotion and evaluation of delivery systems. The close association between customer age and product usage suggests a life cycle rather than a strict segmentation approach to marketing. A bank must realise that financial needs change as a customer matures, and anticipate and provide for these changing needs in order to build a solid customer base. Research into the users of 31 retail banks in a Midwestern US state indicates that there is a greater chance of success in promoting certain products to a particular age group, and that product usage tends to support the assumption that user age is a primary factor in bank product selection.

The reduction in foreclosure-risk exposure to S&L mortgage portfolios that results from elimination of geographic restrictions due to DIDMCA of 1980 is evaluated in this study. By employing a quadratic programming approach, it is empirically demonstrated that geographic diversification can reduce a mortgage portfolio's foreclosure-risk exposure by 50 percent to 90 percent when compared to geographically undiversified mortgage portfolios. The benefits of reduced-foreclosure risk could accrue to either the FSLIC or to member S&Ls if the FSLIC adopts a risk-based insurance premium.

Adapting to a changing environment of less regulation and more competition is a major challenge to every Savings and Loan Association. Meeting this challenge successfully will require the institution to adjust the composition of both its assets and liabilities. In general, S&Ls have taken full advantage of their new ability to compete for deposits. There has been less progress in adjusting the earning assets to reduce the reliance on real estate lending. This lack o f progress is not surprising: S&Ls are reluctant to make loans in areas where they have very little experience. Unfortunately, there is no source of information readily available that can compensate for this lack of experience. This paper serves to acquaint readers with the retail loan data developed by the American Bankers' Association and applies portfolio concepts to the evaluation of the risk inherent in retail lending. The Analytical ApproachEach year the ABA collects loan loss information from member banks and publishes summary statistics in the Retail Bank Credit Report. This paper shows the average and standard deviation of the annual loss rates for ten retail loan categories for the years 1972 to 1983. These figures allow a comparison of the relative risk inherent in lending in each o f the ten categories. At the strategic level the concern is the loss rate of the entire loan portfolio. At this level of analysis it is important to determine the effect of each asset category on the overall loss rate of the portfolio. This paper shows the effect of each asset on the loss rate of the retail loan portfolio and the loss rate of the total portfolio including mortgages. Summary and ConclusionsThe important insight of modern portfolio theory is that an asset should be evaluated in terms of its effect on the portfolio. This paper advocates using this approach in evaluating retail loans and provides an example analysis using data compiled by the ABA. This example is based on aggregate historical data; an individual S I L should conduct the analysis with the best data available for its market. The proper application of portfolio analysis will help in the evaluation of retail loans and in the control of the risk of the institution.

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Three distinct product areas exist for banks — deposit gathering, customer services and loans. Up until now loans have scarcely been marketed. If they have, they have not been viewed in the context of what would create an optimal product mix. Yet a bank's loan mix is a major portion of its product mix and has the same dimensions of width, breadth and consistency as any other product line. It appears that a significant amount of difficulty in developing effective loan mix strategies has been due to the lack of a system to predetermine loan quality objectively. Management's attitude towards risk, the type of community and future economic conditions all play major roles in determining a suitable loan mix. Loan mix strategy should begin with a recognition of attainable goals and end with a defined programme to co‐ordinate the efforts of marketing staff and the loan department. The optimal loan mix will suit customer needs and return the desired levels of profits.