Chapter+10+Banking+Industry+Structure+and+Competition (1)

Chapter+10+Banking+Industry+Structure+and+Competition (1) -...

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Chapter 10 Banking Industry: Structure and Competition - Historical Development of the Banking System - Financial Innovation and the Evolution of the Banking Industry - Responses to Changes in Demand Conditions: Interest Rate Volatility - Adjustable-rate mortgages, Financial Derivatives - Responses to Changes in Supply Conditions: Information Technology - Bank credit and debit cards, Electronic banking, Junk bonds, Commercial paper market, Securitization - Avoidance of Regulations: Loophole Mining - Reserve requirements: sweep account - Restrictions on interest paid on deposits: money market mutual fund - Financial Innovation and the Decline of Traditional Banking Motivation : In most countries, four or five large banks typically dominate the banking industry, but in the United States there are on the order of 8,000 commercial banks, 1,500 savings and loan associations, 400 mutual savings banks, and 10,000 credit unions. Is more better? Does this diversity mean that the American banking system is more competitive and therefore more economically efficient and sound than banking systems in other countries? What in the American economic and political system explains this large number of banking institutions? Historical Development of the Banking System 1
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Until 1863, all commercial banks in the United States were chartered by the banking commission of the state. No national currency existed, and banks obtained funds primarily by issuing banknotes To eliminate the abuses of the state-chartered banks (called state banks), the National Bank Act of 1863 (and subsequent amendments to it) created a new banking system of federally chartered banks (called national banks), supervised by the Office of the Comptroller of the Currency (OCC), a department of the U.S. Treasury. So, U.S. Has a Dual Banking System State banks chartered by state governments National banks chartered by federal government beginning in 1863 All national banks were required to become members of the Federal Reserve System. State banks could choose (but were not required) to become members of the system, and most did not because of the high costs of membership stemming from the Fed’s regulations.==> regulated by the Fed. During the Great Depression years 1930–1933, some 9,000 bank failures wiped out
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This document was uploaded on 10/28/2011 for the course 220 301 at Rutgers.

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Chapter+10+Banking+Industry+Structure+and+Competition (1) -...

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