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					Chapter 16
 commercial banking industry:
 structure and competition
Chapter 17
 Thrifts: savings and loans and
 credit unions
Chapter 18
 Banking Regulation
Chapter 16
commercial banking industry:
structure and competition


                    路洋谊
Outline
    historical     ☞                structure of the
  development                            U.S.’s


          commercial banking industry
                                               ☞

                                         Financial
    Bank                                Innovation
consolidation                             and the
     and                                 decline of
 nationwide        Separation
  banking            of the
                                        traditional
                                          banking
                                                      ☞
                    banking
                      and
                   securities
☞                  industries   ☞                     ☺
 Historical development of the
 banking system
♬ major controversy involving the
  industry in its early years was
  whether the federal government or
  the states should charter banks.
♬ multiple regulatory agencies




                             ☜
Structure of the U.S.
commercial banking industry
More competitive?
♬ Size distribution and shares of ten
 largest U.S. banks
♬ Number of commercial
 banks :compare with other industries

       Is commercial banking more
     competitive than other industries?
   Restrictions and Response:
   Branches: additional offices for the
    conduct of banking operations
                             Response
                             to Branching
                             Restrictions
Restrictions
on Branching
      Three kinds of financial innovations




                                     Automated
Bank Holding      Nonbank
                                        Teller
 Companies         Bank               Machines




        Restrictions on Branching
♫ Banking holding company : A
corporation that owns several different
companies.
  ♫ Nonbank banks: the bank holding
  company act of 1956 defined a bank as
  a financial institution that accepts
  deposits and makes loans.
 a nonbank bank is a limited-service
 banks that either took deposits but did
 not make commercial loans or did not
 take deposits but made commercial
 loans.
Automated teller machine (ATM):
the bank did not own or rent the ATM
but instead let it be owned by
someone else and paid for each
transaction with a fee, the ATM
would probably not be considered a
branch of the bank and thus would
not be subject to branching
regulations.


                           ☜
       Bank consolidation and
       nationwide banking                               ☜
Superregional banks: bank holding companies that
have begun to rival the money center banks in size
but whose headquarters are not based in one of the
money center cities.

         Riegle-Neal interstate banking and branching
         efficiency act of 1994

 What will the structure of the U.S. banking industry
 look like in the future?

          Are bank consolidation and nationwide banking
          good things?
Separation of the banking and
securities industries
      Repeal of the Glass-Steagall Act

 The case for                The case
allowing banks                against
 to enter the             allowing banks
                           to enter the
   securities                securities
    business                  business


            Future Prospects
The case for allowing banks to
enter the securities business
♫ It is unfair: Brokerage firms have
 been able to pursue traditional
 banking activities with the
 development of money market
 mutual funds and cash management
 accounts.
♫ increased competition       lower
 price
  The case against allowing banks
  to enter the securities business
  Opponents:
  ♫ banks have an unfair advantage in
   competing against brokerage firms.
  ♫ commercial banks face a potential
   conflict of interest if they engage in
   underwriting of securities.
                                                    ☜
Proponents:
♫ regulatory authorities’ greater power
♫ erection of “fire walls” can separate various bank
operation and help prevent conflicts of interest.       ☞
Financial innovation and the
decline of traditional banking
                        Commercial
 Money       Junk
                          paper
 Market      bonds        market       Securitization
 Mutual
 Funds




          The decline of traditional
                 banking


      Reasons                Responses
Reasons:
♫ decline in cost advantages in
 acquiring funds (liabilities)
♫ decline in income advantages on
 uses of funds (assets)
Responses:
♫ attempt to maintain their
 traditional lending activity by
 expanding into new and riskier
 areas of lending.
♫ pursue new off-balance-sheet that
 are more profitable.



                          ☺
Chapter 17
Thrifts: savings and loans and
credit unions


                     路洋谊
                  Thrifts: savings and loans and credit unions


  Mutual saving banks     Savings and loan associations          Credit unions


  The northeastern           all                               Other types
                                       mortgage loans
                                                                 of loans
Insure deposits with         not
  the state or FDIC                            not          Only to members

Less concentrated in         not
   mortgages and                                          History and
have more flexibility          Thrift crisis         ☞    organization
  in their investing
       practices                                         Sources of funds

                           Economic                         Uses of funds
                                        Political
                            forces
                                        forces
                                                            Advantage and
         Today
                                                            disadvantages
        and the
         future                    ☺                      Future of credit unions
mutual savings banks:
♫ mutual savings banks: first
 established by philanthropists in
 Scotland and England to encourage
 saving by the poor.
♫ Advantage: (1)great safer;
 (2)Managers are more risk-averse
 than in the corporate form.
♫ Disadvantage: (1)the mutual form of
 ownership accentuates the principal-
 agent problem that exists in
 corporations.                     ☜
 savings and loan associations:
♫ savings and loan associations: to
  accomplish the part of the American dream
  of home ownership.
   to aggregate depositor’s funds and use the
  money to make long-term mortgage loans.
♫ Character: (1)the single largest provider of
  mortgage loans in the country;
   (2)regulations differed from state to state;
  then in 1934 get support from congress;
 (3) successful and low-risk businesses;
                                 Credit       Central
               Trade             Union        Credit
            associations          size        unions




 Mutual                                            Regulation
ownership                  organization               And
                                                   insurance




               Common                 Nonprofit,
                bond                 Tax-exempt
              membership               status       ☜
Chapter 18
Banking Regulation



                     路洋谊
Outline
♫ asymmetric information and bank
 regulation
♫ the 1980s U.S. banking crisis
♫ federal deposit insurance corporation
 improvement act of 1991
Asymmetric information and bank
regulation
                        Separation of
                         the banking              Government
                        and securities             safety net
  Restrictions            industries
      on
  competition
                            Seven types          Restrictions on
                                                   bank asset
      Consumer                                    holdings and
      protection                                     capital
                                                  requirements

                    Disclosure
                                             Bank
                   requirements
                                          supervision
   Highly leveraged         Existence of    New financial      The effect of
   transaction loans           deposit       instruments       DID and MCA
                             insurance                            of 1980


The burst of                                                       Brokered
                           The 1980s U.S. banking crisis
  financial                                                        deposits
 innovation




                   Federal deposit insurance corporation
                         improvement act of 1991                      Other
                                                                     FDICIA
                                                                    provisions

          Limits on the
                                                            Risk-based
        scope of deposit
                                 Prompt corrective          insurance
            insurance
                                     action                 premiums
Other proposed changes in
banking regulations



                   Market-value
    Regulatory      accounting
   consolidation    for capital
                   requirements

				
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