Customers needs for credit themselves rather than

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customer’s needs for credit themselves rather than having to pass securities in London money market Small banks failed, while others were bought up and integrated in to the expanding branch networks Reasons for banking market consolidation- o Improved communications o Removal of legal barriers o Pursuit of economies of scale Consolidation in the US Communication improved but legal barriers remained the same Living with branching restrictions Us still relies on correspondent relationships and money markets Balance small banks keep w correspondent are useful- source of liquidity for respondent and important source of funds for correspondent Correspondent relationship with fed funds market replicates liquidity benefits of pooling deposits that could be done by branches of a branch bank Replicated diversification through loan sharing- interbank market in loans to paralleled the interbank market in funds Getting around Branching Restrictions Multibank Holding Companies- o Holding company- corporation that doesn’t conduct business itself- it owns other corporations. Banks use this to get around restriction o The bank holding company act prohibited this type of expansion across state lines Nonbank Banks and Offices- o If a bank sets up an office that takes checking deposits or makes loans- but not both- its legally not a bank branch. Called a nonbank bank or consumer bank- if deposits but not loans. Called nonbank office- if makes loans but doesn’t accept deposits The Movement Towards Interstate Banking- Regional Interstate Banking- The Riegle-Neal Interstate Banking Law o Liberalized interstate banking, allowed nationally chartered bank holding companies to acquire banks anywhere in the nation. Banks aren’t allowed to simply open banks across state lines, to enter a new state they must purchase and existing bank in that state, however once in that state they may open additional branches if the state permits The Extent of Consolidation in the US International Banking- Expansion of international banking.
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Reasons for the Expansion of International Banking The Recovery of World Trade and of International banking- o Great depression ushered long period of diminished trade, trade began to recover after WW2 Liberalization of Financial Sectors- o Countries removed restrictions on international investment, the market become more integrated o Movement towards free trade in financial services Economies of Scale and Scope- o 3 rd reason of international banking expansion o reduce cost of international transaction by branching overseas rather than using correspondents Escaping Government Regulations- o 4 th reason for growth of international banking o international growth is substitute for restrictions on geographic expansions in the US o Multinational banking- bank operating in another country using that currency o Offshore Banking- bank operating in another country but using its home currency
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