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Unformatted text preview: Introduction to Banking Introduction
James B. Bexley, Chair Smith-Hutson Endowed Chair of Smith-Hutson Banking Banking The TARP Is Not A Bailout!
• • • • In spite of what you hear in the media & In political circles, the TARP is not a bailout! political Regardless of whether you favor the TARP or Regardless not, it is a loan to the bank secured by stock in the bank. in The banks pay from 11 to 15 percent effective The interest on the debt. interest In five years, if not paid, the interest virtually In doubles. doubles.
2 Financial Reform
• Unfortunately, the public, the press, and the politicians don’t know the difference between investment banks, mega banks, and community banks. • In the three “Ps” they believe “one size fits all” when it comes to bank regulation. • The 2010 Congress passed the Dodd-Frank Bill and basically painted all banks with the same brush. • Regulatory agencies, bending to political pressure are overreacting in their treatment of banks. • The most ludicrous of the Dodd-Frank Bill’s provisions is to protect the consumers from themselves by the optin debit card provisions.
3 2009-1st Quarter 2010
• FDIC Assessments & loan problems killed earnings FDIC with all insured institutions reporting $3.7 billion 2nd with Qtr Loss in 2009. Qtr • Earnings for 1st Qtr 2010 were $18.0 billion • Half of all banks reported quarter over quarter Half earnings improvement in 1st Qtr 2010. earnings • Only 18.7% of all banks reported a loss in 1st Qtr 2010 • But—number of troubled banks rose to 775 in 1st Quarter 2010 from 4th quarter 2009’s 702. Quarter • Over 300 banks have failed during crisis. • Speculation is that about 158 will fail in 2010!
4 Industry Assets by Bank Size
Bank Size Less than $100 Million $100 Million to $1 Billion $1 Billion to $10 Billion Over $10 Billion Assets (Billions) Asset % 155.4 1.16% 1,339.6 10.03% 1,478.2 11.07% 10,383 77.74% Number FDIC Institutions 8,099 Institutions
1,160 6,772 1,188 6,911 Total-7,932 Location of Institutions Mergers, Failures, & New Charters 41 41 37 3 Loan to Deposit Ratios Capital Ratios Loan Composition Changes in Loans vs. Deposits $204.89 Bil -$5.07 bil Sub S Corp vs. C Corp Quarterly Net Income Return on Assets 0.54 ROA Rankings By State ROA by Region Net Interest Margins by Region Non-Current & Net Charge-Offs 19 Net Charge Offs to Loans Non-Current Loans 5.14% 3.33% Problem Institutions Charge-Offs by Loan Type D 23 Credit Card Losses & Bankruptcies Community Banks
• • • Half as many community banks as in 1985. Lost significant deposit & asset share. At first look picture on community banking not At good--but this is not true. good--but
– – Still make up 94% of industry banks. Maintain their strong presence in all markets-urban, suburban, & rural. – Deposit share declined since 1985, but still play a Deposit large role in all local banking markets. large – Personal service delivery is their strength that large Personal banks cannot match. banks – Better at assessing creditworthiness of borrowers Better without long credit histories than big banks. without
Community banks defined as independent banks with assets of less that $1 billion. Data Source: FDIC 25 Future of Banking
• With all of the problems, why look at future of banking?
– First, the problems won’t last—must look to future. – Fear is great teacher & motivator! – Fear cuts through complacency & sharpens focus. – Vision will overcome fear.
26 Future of Banking
• Back to the basics:
– Reduce expenses & increase profits • Unique economy requires more than basics: • Technology will be the lead vehicle to success
– Capitalize on growth trends – Secure key customers that are profitable—the “mass affluent” or 31% of all households – Net worth of $250,000 & $2,000,000 – Use more products • Key is focus, capital, & liquidity Source: “The Future of Banking” by Lee Wetherington 27 Community Bank Challenges
• Number likely to decline. • Difficult to find & retain qualified people. • Competition from non-bank competitors is likely to Competition continue. continue. • Fixed costs of regulatory requirements fall more Fixed heavily on community banks. heavily • Regulatory burdens could have a significant effect on Regulatory community banks. community • FDIC assessment is an unfair burden on community FDIC banks. banks. • NEVERTHELESS, EVIDENCE FROM RECENT NEVERTHELESS, PAST POINTS TOWARD THEIR VIABILITY IN THE FUTURE. THE
Source: FDIC 28 Conclusion
• Banking is very competitive, but provides a great opportunity for those who are willing to compete. • The opportunity to advance more rapidly occurs in the small to mid-sized banks. This is not to say that you can’t advance in a multi-national bank—it is harder to get recognized.
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This note was uploaded on 09/30/2010 for the course FIN 468 taught by Professor Bexley during the Fall '10 term at Sam Houston State University.
- Fall '10