Commercial Bank - Banking - Lecture Slides, Slides of Banking and Finance

Download Commercial Bank - Banking - Lecture Slides and more Slides Banking and Finance in PDF only on Docsity! Commercial Bank Structure and Bank consolidation Docsity.com Structure of the U.S. Commercial Banking Industry 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 commercial 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? Docsity.com What caused this? THERE ARE FAR MORE COMMERCIAL BANKS IN THE U.S. THAN IN ANY OT HER COUNTRY IN THE WORLD. Docsity.com Commercial Banks: The Facts Currently there are 7,000 commercial banks i n the United States 40% of banks have less than $100,000 million in assets The Glass-Stegall Act passed in1933 require d that commercial banks engage only in bank ing activities. This separation is no longer en forced. Docsity.com Does this mean that there is greater competition in the U nited States than in other countries? IN OTHER COUNTRIES, FAR FEWER BANKS DOMINATE THE INDUSTRY Docsity.com The McFadden Act Allowed many small ba nks to stay in business because larger banks w ere not allowed to open near them. In an effort to protect s mall banks the regulati on actually hurt consu mers by limiting compe tition Docsity.com Why was this type of strict regulation allowed to go on in the United States?  Fear of large banks  There was a bad sentiment towar d certain large banks because in the 19th century banks would foreclose on farmers who could not pay their debts. Docsity.com What does the large number of commercial banks in the U.S. reflect? Lack of competition? or Presence of competition? Docsity.com 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 o f banks declined by 3000, more than d ouble the number of failures. In the period 1992-2007, when the ba nking industry returned to health, the number of commercial banks declined by a little over 3,800, less than 5% of which were bank failures, and most of these were of small banks. Docsity.com Bank Consolidation Banks have been merging to create la rger entities or have been buying up o ther banks Docsity.com Reason & Formation Best interest if they allowed ownershi p of banks across state lines. Could gain the benefits of diversificati on because they would now be able to make loans in many states rather tha n just one. Docsity.com Good Things? Con 1)Eliminate small banks 2)A few banks make the banking busin ess less competitive Docsity.com Good Things? Pro 1) Increase competition 2) Increase the efficiency of the bankin g sector 2)Take advantage of economies of scal e and scope Docsity.com