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Chap002 - Chapter Two The Financial Services Industry...

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Chapter Two The Financial Services Industry: Depository Institutions Chapter Outline Introduction Commercial Banks Size, Structure, and Composition of the Industry Balance Sheet and Recent Trends Other Fee-Generating Activities Regulation Industry Performance Savings Institutions Savings Associations (SAs) Savings Banks Recent Performance of Savings Associations and Savings Banks Credit Unions Size, Structure, and Composition of the Industry and Recent Trends Balance Sheets Regulation Industry Performance Global Issues: Japan, China, and Germany Summary Appendix 2A: Financial Statement Analysis Using a Return on Equity (ROE) Framework Appendix 2B: Depository Institutions and Their Regulators Appendix 3B: Technology in Commercial Banking 11
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Solutions for End-of-Chapter Questions and Problems: Chapter Two 1. What are the differences between community banks, regional banks, and money-center banks? Contrast the business activities, location, and markets of each of these bank groups. Community banks typically have assets under $1 billion and serve consumer and small business customers in local markets. In 2003, 94.5 percent of the banks in the United States were classified as community banks. However, these banks held only 14.6 percent of the assets of the banking industry. In comparison with regional and money-center banks, community banks typically hold a larger percentage of assets in consumer and real estate loans and a smaller percentage of assets in commercial and industrial loans. These banks also rely more heavily on local deposits and less heavily on borrowed and international funds. Regional banks range in size from several billion dollars to several hundred billion dollars in assets. The banks normally are headquartered in larger regional cities and often have offices and branches in locations throughout large portions of the United States. Although these banks provide lending products to large corporate customers, many of the regional banks have developed sophisticated electronic and branching services to consumer and residential customers. Regional banks utilize retail deposit bases for funding, but also develop relationships with large corporate customers and international money centers. Money center banks rely heavily on nondeposit or borrowed sources of funds. Some of these banks have no retail branch systems, and most regional banks are major participants in foreign currency markets. These banks compete with the larger regional banks for large commercial loans and with international banks for international commercial loans. Most money center banks have headquarters in New York City. 2. Use the data in Table 2-4 for the banks in the two asset size groups (a) $100 million-$1 billion and (b) over $10 billion to answer the following questions.
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