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LECTURE NINE Structure and Competition of Banking Industry ECONOMICS 209 Professor Kevin Huang Vanderbilt University
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10-1 Banking Industry: Structure and Competition The U.S. has a dual banking system ± State banks chartered by state governments ± National banks chartered by federal government beginning in 1863 A large number of depository institutions with approximately ± 7,500 commercial banks ± 1,300 savings and loan associations ± 400 mutual savings banks ± 8,900 credit unions All national banks are required to be members of the Federal Reserve System All member banks of the FED are required to purchase FDIC insurance for their depositors
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10-2
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10-3 Primary Supervisory Responsibility of Bank Regulatory Agencies The Office of the Comptroller of the Currency—the 1,850 national banks FED and state banking authorities—the 900 state banks that are members of the FED FED regulates bank holding companies and also has secondary responsibility for the national banks FDIC and state banking authorities—the 4,800 FDIC insured state banks that are not members of the FED State banking authorities—the fewer than 500 state banks that do not have FDIC insurance
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10-4 Financial Innovation and the Evolution of the Banking Industry Financial innovation by financial institutions is driven by the desire to earn profits Responses to changes in demand conditions (due to increased interest-rate volatility) Responses to changes in supply conditions (due to advance in information technology) Avoidance of regulations
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10-5 Responses to the Increase in the Volatility of Interest Rates Adjustable-rate mortgages—on which the interest rate is tied to some market interest rate (such as the T-bill rate) Financial derivatives—to hedge interest rate risk
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10-6 Responses to the Rapid Advance in Information Technology Bank credit and debit cards ± Improved computer technology lowers the transaction costs Electronic banking ± ATM (withdraw, deposit, transfer funds, check balances) ± Home banking (plus: linked up with the bank’s website from home) ± Automated banking machine (plus: a phone link to customer service)
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LectureNote9 - LECTURE NINE Structure and Competition of...

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