chapter three the organization and structure of banking and the financial services industry
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CHAPTER THREE The Organization and Structure of Banking and The Financial Services Industry. - PowerPoint PPT PresentationTRANSCRIPT
CHAPTER THREE The Organization and
Structure of Banking and The Financial Services Industry
The goal of this chapter is to explore the different types of organizations used in the banking and financial services industry, to see how changing public mobility and changing demand for financial services, the rise of potent competition, and changing government rules have change the structure, size and the types of organizations in this industry.
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Assets Held by U.S. FDIC-insured Commercial Banks, 2001
84.2%
12.5%
3.4%
Assets Held By Large Banks - > $1 Billion
Assets Held By Medium Banks - $100 Mill. To $1 Bill.
Assets Held By Small Banks - < $100 Million
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Number of U.S. FDIC-insured Commercial Banks
55.5%
5.0%
39.5%Largest U.S. Banks - > 1 Billion in Assets
Medium U.S. Banks - $100 Mill. To 1 Bill. InAssets
Smallest U.S. Banks - < $100 million in Assets
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Common Classifications of U.S. Banks 2001 9014 Banks
98%
2%
26%
74%
38%
62%
46%
54%
79%
21%
0 0.2 0.4 0.6 0.8 1 1.2
FDIC Insured Banks
Uninsured Banks
Insured w ith National Charters
Insured w ith State Charters
Insured Federal Reserve Member Banks
Insured Nonmember Banks
Deposits of State Banks
Deposits of National Banks
Deposits of Federal Reserve Member Banks
Deposits of Nonmember Banks
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Unit Banks
Offer All Services From One Office
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Branch Banks
Offer Full Range of Services from Several Locations
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Branch Banking Proponents and Opponents
ProponentsGreater Operating Efficiency
Availability and Convenience of Services
Fewer Failures
OpponentsDrives Out Smaller Competitors
Higher Service Fees
Drains Scarce Resources from Local Community
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Virtual Banks
Operate Exclusively on the Internet
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Bank Holding Company (BHC)
A Corporation Chartered for the Purpose of Holding the Stock of One or More Banks
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Nonbank Businesses of BHCs
Finance CompaniesMortgage CompaniesData Processing CompaniesInsurance UnderwritersSecurity Brokerage FirmsFinancial AdvisingMerchant Banking
Trust Companies
Credit Card Companies
Leasing Companies
Insurance Agencies
Real Estate Services
Savings and Loan Associations
Security Underwriting Firms
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Reasons for the Growth of BHCs
Geographic Diversification
Product Line Diversification
Tax Sheltering
Double Leveraging
Source of Strength
A Way Around Regulatory Restrictions
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Full-Service Interstate Bank
Banks Providing All of Their Services Across State Lines
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Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
Allows BHCs to Acquire Banks Anywhere in the U.S.Allows BHCs to Convert Banks to Branches – June 1997States Can ‘Opt Out’ and Not Allow BHCs to Convert to BranchesStates Can ‘Opt In’ EarlyLimits Deposits of One BHC to 10% Nationwide and 30% Within One State
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Proponents and Opponents of Interstate Banking
ProponentsEfficient Use of Scarce Resources
Lower Prices for Services
Geographic Diversification
Efficient Flow of Credit in the System
OpponentsIncreased Bank Concentration
Less Competition
Higher Prices for Services
Drain Resources from Community
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Banking and Financial Firm Goals
Expense Preference BehaviorManagers Value Fringe Benefits Over Pursuit of Maximizing Return for Shareholders
Agency TheoryExplores Whether Mechanisms Exist to Compel Management to Act to Maximize the Return to Shareholders
Corporate GovernanceRelationships Among Managers, the Board of Directors, the Stockholders and Other Stakeholders of a Corporation