The study aims at determining the nature, magnitude of influence and causalities between Firm Size and Retained Earnings with evidence from Nigeria Banking Sector (2002 -2013). The 2-step cointegration and error correction model of Engle and Granger (1987) in a simple regression framework was applied in the study and correlation approach was adopted in the analysis with an estimation of an error correction model. The study variables were tested for stationarity and were found to be integrated of the same order I (1), indicating a co integration. Firm Size has a short term positive but insignificant effect on Retained Earnings while the long run coefficient shows that Firm Size has a positive and significant influence on Retained Earnings. There is no granger causality running from either Firm Size to Retained Earnings or from Retained Earnings to Firm Size. A very strong relationship exists between Firm Size and Retained Earnings at approximately 98.6%. The long run significant relationship is in tandem with logical reasoning and in line with our a priori expectation as well as the life cycle theory. The implication is that firm size could determine the extent of reserve to be maintained by banks in the long run. Therefore, at the maturity stage of a bank, retained earnings should be reduced to increase dividend pay-out to its shareholders as the bank might have reached a point where it lacks profitable investment opportunities for the cash generated from its existing operations