![Page 1: US Bank of Washington; Commercial Banks in US](https://reader031.vdocuments.net/reader031/viewer/2022020217/55493a6eb4c9050f4d8b4b08/html5/thumbnails/1.jpg)
Management of Commercial BanksU.S BANK OF WASHINGTON
HBR Case Study
GROUP 1.Ghanshyam Gupta 109
Balagopal Padmakumar 301Harbir Singh Banga 302
Rishi Bajaj 402Anirwan Bhattacharya 503
![Page 2: US Bank of Washington; Commercial Banks in US](https://reader031.vdocuments.net/reader031/viewer/2022020217/55493a6eb4c9050f4d8b4b08/html5/thumbnails/2.jpg)
Commercial Banks and their roleRishi Bajaj 402
![Page 3: US Bank of Washington; Commercial Banks in US](https://reader031.vdocuments.net/reader031/viewer/2022020217/55493a6eb4c9050f4d8b4b08/html5/thumbnails/3.jpg)
COMMERCIAL BANK
• A financial institution that provides banking and financial services to Commercial institues, organizations, bodies, companies and entities.
• The traditional commercial bank is a brick and mortar institution with tellers, safe deposit boxes, vaults and ATMs.
![Page 4: US Bank of Washington; Commercial Banks in US](https://reader031.vdocuments.net/reader031/viewer/2022020217/55493a6eb4c9050f4d8b4b08/html5/thumbnails/4.jpg)
CURRENT PLAYERS
• The term ‘Commercial Bank’ used for a normal bank to distinguish it from an investment bank.
• After the Great Depression, the U.S. Congress required that banks only engage in banking activities, whereas investment banks were limited to capital market activities.
• Since the two no longer have to be under separate ownership, some use the term "commercial bank" to refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses.
![Page 5: US Bank of Washington; Commercial Banks in US](https://reader031.vdocuments.net/reader031/viewer/2022020217/55493a6eb4c9050f4d8b4b08/html5/thumbnails/5.jpg)
U.S COMMERCIAL BANKS
• The largest commercial banks – Bank of America Corp, – JP Morgan Chase & Co, – HSBC Bank, – Citigroup, and – Goldman Sachs Group (96 percent of all exposures and had the largest share of derivative exposures of the commercial banking sector)
• Some commercial banks, also have investment banking divisions, while others, such as Ally, operate strictly on the commercial side of the business.
![Page 6: US Bank of Washington; Commercial Banks in US](https://reader031.vdocuments.net/reader031/viewer/2022020217/55493a6eb4c9050f4d8b4b08/html5/thumbnails/6.jpg)
ROLE – ENGAGE IN ACTIVITIES
• Processing of payments by way of telegraphic transfer, internet banking, or other means
• Issuing bank drafts and bank cheques• Accepting money on term deposit• Lending money by overdraft, installment loan, or
other means• Providing documentary and standby LC,
Guarantees, Performance Bonds, Security underwriting and other forms of off balance sheet exposure
![Page 7: US Bank of Washington; Commercial Banks in US](https://reader031.vdocuments.net/reader031/viewer/2022020217/55493a6eb4c9050f4d8b4b08/html5/thumbnails/7.jpg)
ROLE (CONT.)
• Safekeeping of documents and other items in safe deposit boxes
• Sales, distribution or brokerage, with or without advice, of: insurance, unit trusts and similar financial products as a “financial supermarket”
• Cash management and treasury• Merchant Banking & PE Financing • Traditionally, large commercial banks also underwrite
bonds, make markets in currency, interest rates and credit related securities (usually handled by IB now)
• Broader role towards economy, government.
![Page 8: US Bank of Washington; Commercial Banks in US](https://reader031.vdocuments.net/reader031/viewer/2022020217/55493a6eb4c9050f4d8b4b08/html5/thumbnails/8.jpg)
Primary Function
Accepting Deposits
Making Advances
Credit creation
![Page 9: US Bank of Washington; Commercial Banks in US](https://reader031.vdocuments.net/reader031/viewer/2022020217/55493a6eb4c9050f4d8b4b08/html5/thumbnails/9.jpg)
Secondary Function
Agency Functions
General Utility Functions
![Page 10: US Bank of Washington; Commercial Banks in US](https://reader031.vdocuments.net/reader031/viewer/2022020217/55493a6eb4c9050f4d8b4b08/html5/thumbnails/10.jpg)
AGENCY FUNCTIONS
• To collect and clear cheque, dividends and interest warrant.
• To make payment of rent, insurance premium, etc.
• To deal in foreign exchange transactions.• To purchase and sell securities.• To act as trusty, attorney, correspondent and
executor.• To accept tax proceeds and tax returns.
![Page 11: US Bank of Washington; Commercial Banks in US](https://reader031.vdocuments.net/reader031/viewer/2022020217/55493a6eb4c9050f4d8b4b08/html5/thumbnails/11.jpg)
GENERAL UTILITY FUNCTIONS
• To provide safety locker facility to customers.• To provide money transfer facility.• To issue traveller's cheque.• To accept various bills for payment e.g phone
bills, gas bills, water bills, etc.• To provide merchant banking facility.• To provide various cards such as credit cards,
debit cards, Smart cards, etc.
![Page 12: US Bank of Washington; Commercial Banks in US](https://reader031.vdocuments.net/reader031/viewer/2022020217/55493a6eb4c9050f4d8b4b08/html5/thumbnails/12.jpg)
Changes in the sectorGhanshyam Gupta 109
![Page 13: US Bank of Washington; Commercial Banks in US](https://reader031.vdocuments.net/reader031/viewer/2022020217/55493a6eb4c9050f4d8b4b08/html5/thumbnails/13.jpg)
Traditional & Modern Role of US Banks
The two main roles played by banks in US are
• Operate payment system of credit cards, checks etc
• Channelizing credit to business and households, investing money into the economy
![Page 14: US Bank of Washington; Commercial Banks in US](https://reader031.vdocuments.net/reader031/viewer/2022020217/55493a6eb4c9050f4d8b4b08/html5/thumbnails/14.jpg)
• Traditionally, banks funded their loan portfolios by issuance of deposit/insurance & pension liabilities to the investors.
Credit Market in 1950• Primary Asset Held: U.S. Treasury Securities, C&I loans, Business
& Home mortgages, Consumer Credit• Sources of Funding: Zero interest bearing checking accounts,
saving accounts
• There has been a shift in how banks lend: from short term lending of funds unsecured by real estate to collateralized loans.
![Page 15: US Bank of Washington; Commercial Banks in US](https://reader031.vdocuments.net/reader031/viewer/2022020217/55493a6eb4c9050f4d8b4b08/html5/thumbnails/15.jpg)
• Asset securitization of home mortgages as well as consumer credit have resulted in an reduction in the extent to which commercial banks fund these loans directly to the client.
• There has been a change in the composition of bank loan portfolio as well as the bank customers.
• Small time deposits have been increasing as a percentage of total assets. Demand deposits continued to fall.
• There has been a change in the maturity structure of bank’s assets, average maturity of banks loans and earning assets has risen since 1988.
• Providing several services through separate business units e.g. US Bancorp
![Page 16: US Bank of Washington; Commercial Banks in US](https://reader031.vdocuments.net/reader031/viewer/2022020217/55493a6eb4c9050f4d8b4b08/html5/thumbnails/16.jpg)
• The Gramm-Leach-Bliley Act, allows banks again to merge with investment and insurance houses.
• Banks have expanded the use of risk-based pricing from business
lending to consumer lending
• Third, banks have sought to increase the methods of payment processing available to the general public and business clients. These products include debit cards, prepaid cards, smart cards, and credit cards.
![Page 17: US Bank of Washington; Commercial Banks in US](https://reader031.vdocuments.net/reader031/viewer/2022020217/55493a6eb4c9050f4d8b4b08/html5/thumbnails/17.jpg)
Traditional profit makingAnirwan Bhattacharya 503
![Page 18: US Bank of Washington; Commercial Banks in US](https://reader031.vdocuments.net/reader031/viewer/2022020217/55493a6eb4c9050f4d8b4b08/html5/thumbnails/18.jpg)
Traditional Profit Making
• Held loans and securities as assets, which in turn were
primarily funded by issuance of deposit liabilities
• By 1989, loans accounted for over 61% of total assets held by
US commercial banks
• Strong growth in real estate loans, steady growth in consumer
loans
• Due to high perceived risk in commercial sector, banks’ real
estate portfolio has seen a shift from commercial to
residential mortgages
![Page 19: US Bank of Washington; Commercial Banks in US](https://reader031.vdocuments.net/reader031/viewer/2022020217/55493a6eb4c9050f4d8b4b08/html5/thumbnails/19.jpg)
• $11 billion consumer receivables mostly credit card debt and
automobile loans were securitized in 1989
• Securitization helped banks to remove underlying loans from
bank’s balance sheet thus lowering the regulatory capital
required to support actual level of bank’s lending activity
• It also enabled banks to earn free income from originating
and servicing the loans
• Non-interest income has seen an increase
![Page 20: US Bank of Washington; Commercial Banks in US](https://reader031.vdocuments.net/reader031/viewer/2022020217/55493a6eb4c9050f4d8b4b08/html5/thumbnails/20.jpg)
• In 1989, Net income for banking industry was down due to
provisions for losses on non-performing loans
• Interest cost of deposits and purchased funds increased
resulting lower net interest margin
• Small banks continued to book relatively high profits, larger
banks, particularly the money center institutions, reported
weak earnings.
• This was due to losses for commercial real estate and
domestic business loans
![Page 21: US Bank of Washington; Commercial Banks in US](https://reader031.vdocuments.net/reader031/viewer/2022020217/55493a6eb4c9050f4d8b4b08/html5/thumbnails/21.jpg)
Strategies for future
Harbir Singh Banga 302Balagopal Padmakumar 301
![Page 22: US Bank of Washington; Commercial Banks in US](https://reader031.vdocuments.net/reader031/viewer/2022020217/55493a6eb4c9050f4d8b4b08/html5/thumbnails/22.jpg)
THANK YOU!