lecture 9 Chpt 13 D2L 2011

lecture 9 Chpt 13 D2L 2011 - Fin 320 Chapter 13 Financial...

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Fin 320 Chapter 13 Financial Industry Structure Lecture 9 1
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Financial Industry Structure The U.S. has about 6800 commercial banks and roughly 16,000 depository institutions. For many years, most U.S. banks were unit banks, or banks without branches. The decline in the total number of banks and the increase in the number of banks with branches are not the only changes we have seen. 2
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Number of U.S. Commercial Banks 3
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Recent Significant Change The crisis of 2007-2009 has transformed the U.S. financial industry. The failure or forced merger of several large banks and other depository institutions accelerated concentration. In July 2008, the U.S. government placed the two massive government- sponsored enterprises (GSEs) for housing finance in conservatorship. In September 2008, the four largest 4
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A Short History of U.S. Banking Before 1863: States chartered banks Issued their own banknotes National Banking Act of 1863 10% tax on banknotes from state- chartered banks Created national banks, issue banknotes tax free Today we have a dual banking system 5
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A Short History of U.S. Banking State banks devised another way to make money--demand deposits. This is how we got the dual-banking system we have today. Banks can choose whether to get their charters from the Comptroller of the Currency at the U.S Treasury or Banks can get a charter from state officials. 6
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A Short History of U.S. Banking About 3/4 have a state charter and the rest a federal charter. Which charter a bank chooses depends on its profitability. The ability for banks to go back and forth between charters created what amounts to regulatory competition. Globalization has increased competition between national government 7
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A Short History of U.S. Banking The Great Depression lead to the Glass-Steagall Act of 1933. This created the Federal Deposit Insurance Corporation (FDIC). Severely limited the activities of commercial banks. Provided insurance to individual depositors, so they would not lose their savings in the event that a bank failed. Restricted bank assets to certain 8
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A Short History of U.S. Banking The law (Glass-Steagall) separated commercial banks from investment banking. This limited financial institutions from taking advantage of economies of scale and scope that might exist. This changed in 1999 with the Gramm- Leach-Bliley Financial Services Modernization Act which repealed the Glass-Steagall Act. 9
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Banking Industry Structure: Prior to 1980 there were a large number of unit banks 1935: 14,125 banks with 17,237 offices Today: 6,800 banks with many branches WSJ 9/27/2010: “Such consolidation also means the biggest are getting bigger: Bank of America, J.P. Morgan Chase & Co. and Wells Fargo hold 33% of all U.S. deposits, up from 21% in 2006, according to SNL Financial.” 10
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Number & Assets of U.S. Commercial Banks 11
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This document was uploaded on 10/26/2011 for the course FIN 320 at DePaul.

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lecture 9 Chpt 13 D2L 2011 - Fin 320 Chapter 13 Financial...

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