Nationally chartered banks will be allowed to branch across state lines beginning June 1, 1997. Whether they will depends on their assessment of the profitability of such a delivery system for their services and on their preferences regarding risk and return. The authors investigate the probable effect of interstate branching on banks' risk-return trade-off, accounting for the endogeneity of deposit volatility. If interstate branching improves the risk-return trade-off banks face, then banks that branch across state lines may choose a higher level of risk in return for higher profits. The authors find efficiency gains due to geographic diversity. Coauthors are William Lang, Loretta J. Mester, and Choon-Geol Moon. Copyright 1996 by Ohio State University Press.