This study traces the patterns of competition, strategic orientations, and the differential risk/return profiles associated with various business strategies in the banking industry. It addresses the unresolved questions of strategic groups existence, stability, and performance effects by examining two contrasting models of strategic group formation/identification. It extends the literature conceptually by proposing that strategic groups be identified using firm resource bundles/capabilities in addition to observed product market strategies. Further, it tests an expanded model of strategy-performance linkage, and draws several empirical implications for the resource based view. In the longitudinal facet, using data from the Bank Compustat database, eleven scope and resource deployment variables were employed to identify strategic groups at the corporate strategy level, using a two stage clustering algorithm, over a fifteen year period (1974-1988). The impact of discontinuous environmental change such as deregulation on strategic group dynamics and firm level risk-return relationship was examined. In addition, performance and risk differences both across and within groups were investigated. In the cross-sectional facet, scores obtained from an expert panel of leading bank analysts on ten key resources during semi-structured interviews, were used to identify strategic groups. The study found that strategic groups characterized competition in the banking industry both before and after deregulation. Some support was found for the underlying stability of the strategic groups, despite the profound changes characterizing the banking industry. Environmental discontinuity was found to enhance inter-group mobility and strengthen the negative risk-return relationship prevalent in this industry. Across-group performance differences were found on economic and risk dimensions, but not on risk-adjusted dimensions except in the last time period. Within-group performance differences were found, but risk differences within groups existed in only 45% of the tests. A model of firm performance which included strategic group membership along with firm resources was found to have a significantly greater explanatory power than a model which omitted firm resources. Finally, resource based groupings appeared to be a empirically viable representation of industry rivalry and these groups were meaningful predictors of economic performance.