Commercial Bank

1. Commercial Bank Structure and Bank consolidation KANGWON RACHAEL CAROLINE XIAOYI

2. 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?

3. Contents 1. Introduction. 2. Commercial Bank 3. Restriction. 4. Bank Consolidation 5. Conclusion

4. 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 CONTENTS

5. What caused this? There are far more commercial banks in the U.S. than in any other country in the world.

6. What exactly is a Commercial Bank?

7. 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 engage only in banking activities. This separation is no longer enforced.

8. Does this mean that there is greater competition in the United States than in other countries? In other countries, far fewer banks dominate the industry

9. NO!

10. The McFadden Act 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 PURPOSE: WHAT DID IT DO?

11. 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 protect small banks the regulation actually hurt consumers by limiting competition

12. Why was this type of strict regulation allowed to go on in the United States? • Fear of large banks • There was a bad sentiment toward certain large banks because in the 19th century banks would foreclose on farmers who could not pay their debts.

13. Whatdoes the large number of commercial banks in the U.S. reflect? Lack of competition? or Presence of competition?

14. Presence of Competition • McFadden Act of 1927 • Bank Holding Companies • Riegle- Neal Interstate Banking • Branching Efficiency act

15. Number of Insured Commercial Banks

16. 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 declined by a little over 3,800, less than 5% of which were bank failures, and most of these were of small banks.

17. Bank Consolidation • Banks have been merging to create larger entities or have been buying up other banks

18. Reason & Formation • Best interest if they allowed ownership of banks across state lines. • Could gain the benefits of diversification because they would now be able to make loans in many states rather than just one.

19. Reason & Formation • Loosening of restrictions on interstate branching is the development of a new class of banks. • Superregional banks • E.g. Bank of America of Charlotte, North Carolina, and Banc One of Columbus, Ohio.

20. Reason & Formation Cont. • The advent of the Web and improved computer technology is another factor driving bank consolidation.

21. Good Things? • Con 1)Eliminate small banks 2)A few banks make the banking business less competitive

22. Good Things? • Pro 1) Increase competition 2) Increase the efficiency of the banking sector 2)Take advantage of economies of scale and scope