While it is generally believed that pressure from peers induces employees to improve their efficiency and performance, little is known about whether employees' improved performance is detrimental to the interests of others. Based on a granular dataset at the individual-month level of investment advisors' and customers’ accounts from a large retail bank in China, we find that peer pressure, as measured by the performance of advisors relative to their colleagues in the previous month, can induce the advisors to sell more financial products, but can also exacerbate misselling, resulting in a significant increase in sales of poor-quality financial products ("high-risk-low-return" products). The causal link is identified with an exogenous change of peer size. The peer pressure effects are pronounced among poor performance advisors, and client complaints play a monitoring role in curbing misselling. By exploring the correspondence between advisors and clients, we find that misselling occurs mainly between female advisors and male clients, and between advisors who lack work experience and clients who lack investment experience.

This paper reviews the two most important papers of contemporary banking theories: Contemporary Banking Theory (Bhattacharya et al 1993) and Theories of the Banking Firm: A Review of the Literature (Swank 1996), which focus on dealing with the question of why banks exist, and how the banks behavior. These two papers have valuable practical implications for the management of the retail banks, especially the theories of the risk management, the portfolio models, liquidity and maturity transformations, etc. This essay discussed the implications of the theories of retail banking and the developments of the retail banking.