Commercial Bank Structure and Bank consolidation

KANGWONRACHAELCAROLINEXIAOYI

Structure of the U.S. Commercial Banking Indus-try and the Deregulation

There are far more commercial banks in the U.S. than in any other country in the world.

What caused this?

What did the large number of com-mercial banks in the U.S. reflect: the lack of competition or the presence of vigorous competition?

What stimulated bank consolidation? Is it good or bad?

GROUP 5

Contents

1. Introduction.

3. Restriction.

4. Bank Consolidation

2. Commercial Bank

5. Conclusion

GROUP 5

CONTENTS

1.Structure of U.S. Commercial Bank

a) Restrictions on Branching

b) Response to Branching Restriction

1) Bank Holding Companies.

2) Automated Teller Machines

2. Bank Consolidation and Nationwide Banking

a) The Riegle-Neal interstate Banking and

Branching Efficiency Act

What caused this?

THERE ARE FAR MORE COMMER-CIAL BANKS IN THE U.S. THAN IN ANY OTHER COUNTRY IN THE WORLD.

What exactly is a Commercial Bank?

Commercial Banks: The Facts

Currently there are 7,000 commercial banks in the United States

40% of banks have less than $100,000 million in assets

The Glass-Stegall Act passed in1933 required that commercial banks en-gage only in banking activities. This separation is no longer enforced.

Does this mean that there is greater competi-tion in the United States than in other countries?

IN OTHER COUNTRIES, FAR FEWER BANKS DOMINATE THE INDUSTRY

NO!

The McFadden Act

THE PURPOSE:

WHAT DID IT DO?

To give national banks competitive equality with state-chartered banks

It prohibited interstate branching by allowing each national bank to branch only within the state in which it is situated.

The McFadden Act

Allowed many small banks to stay in business because larger banks were not allowed to open near them.

In an effort to pro-tect small banks the regulation actually hurt consumers by limiting competition

Why was this type of strict regulation allowed to go on in the United States?

Fear of large banks

There was a bad sentiment to-ward certain large

banks because in the 19th century banks would foreclose on farmers who could not pay their debts.

What does the large num-ber of commercial banks in the U.S. reflect?

Lack of competition?or

Presence of competition?

Presence of Competition

McFadden Act of 1927

Bank Holding Companies

Riegle- Neal Interstate Banking

Branching Efficiency act

Number of Insured Commercial Banks

Cause and Fact

Bank failures running at a rate of over 100 per year from 1985 to 1992.

In the years 1985-1992, the number of banks declined by 3000, more than double the number of failures.

In the period 1992-2007, when the banking industry returned to health, the number of commercial banks de-clined by a little over 3,800, less than 5% of which were bank failures, and most of these were of small banks.

Bank Consolidation

Banks have been merging to create larger entities or have been buying up other banks

Reason & Formation

Best interest if they allowed owner-ship of banks across state lines.

Could gain the benefits of diversifica-tion because they would now be able to make loans in many states rather than just one.

Reason & Formation

Loosening of restrictions on inter-state branching is the development of a new class of banks.

Superregional banksE.g. Bank of America of Charlotte,

North Carolina, and Banc One of Columbus, Ohio.

Reason & Formation Cont.

The advent of the Web and improved computer technology is another fac-tor driving bank consolidation.

Good Things?

Con 1)Eliminate small banks 2)A few banks make the banking busi-

ness less competitive

Good Things?

Pro 1) Increase competition 2) Increase the efficiency of the bank-

ing sector 2)Take advantage of economies of

scale and scope