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Structure of the U.S. Commercial Banking Industry and the
Deregulation
There are far more commercial banks in the
U.S. than in any other country in the world.
What caused this?
What did the large number of commercial
banks in the U.S. reflect: the lack of
competition or the presence of vigorous
competition?
What stimulated bank consolidation? Is it
good or bad?
GROUP 5
Contents
1. Introduction.
3. Restriction.
4. Bank Consolidation
2. Commercial Bank
5. Conclusion
GROUP 5
CONTENTS
1.Structure of U.S. Commercial Bank
a) Restrictions on Branching
b) Response to Branching Restriction
1) Bank Holding Companies.
2) Automated Teller Machines
2. Bank Consolidation and Nationwide Banking
a) The Riegle-Neal interstate Banking and
Branching Efficiency Act
What caused this?
THERE ARE FAR MORE COMMERCIAL BANKS IN THE U.S. THAN IN ANY OTHER COUNTRY IN THE WORLD.
Commercial Banks: The Facts
Currently there are 7,000 commercial banks i
n the United States
40% of banks have less than $100,000 million
in assets
The Glass-Stegall Act passed in1933 require
d that commercial banks engage only in bank
ing activities. This separation is no longer en
forced.
Does this mean that there is greater competition in the U
nited States than in other countries?
IN OTHER COUNTRIES, FAR FEWER BANKS
DOMINATE THE INDUSTRY
The McFadden Act
THE PURPOSE:
WHAT DID IT DO?
To give national banks competitive equality with state-chartered banks
It prohibited interstate branching by allowing each national bank to branch only within the state in which it is situated.
The McFadden Act
Allowed many small ba
nks to stay in business
because larger banks w
ere not allowed to open
near them.
In an effort to protect s
mall banks the regulati
on actually hurt consu
mers by limiting compe
tition
Why was this type of strict regulation allowed to go on in the United States?
Fear of large banks
There was a bad sentiment toward certain large
banks because in the 19th century banks would foreclose on farmers who could not pay their debts.
What does the large number of
commercial banks in the U.S. reflect?
Lack of competition?
or
Presence of competition?
Presence of Competition
McFadden Act of 1927
Bank Holding Companies
Riegle- Neal Interstate Banking
Branching Efficiency act
Cause and Fact
Bank failures running at a rate of over 100 per year from 1985 to 1992.
In the years 1985-1992, the number of banks declined by 3000, more than double the number of failures.
In the period 1992-2007, when the banking industry returned to health, the number of commercial banks declined by a little over 3,800, less than 5% of which were bank failures, and most of these were of small banks.
Bank Consolidation
Banks have been merging to create larger entities or have been buying up other banks
Reason & Formation
Best interest if they allowed ownership of banks across state lines.
Could gain the benefits of diversification because they would now be able to make loans in many states rather than just one.
Reason & Formation
Loosening of restrictions on interstate branching is the development of a new class of banks.
Superregional banks
E.g. Bank of America of Charlotte, North Carolina, and Banc One of Columbus, Ohio.
Reason & Formation Cont.
The advent of the Web and improved computer technology is another factor driving bank consolidation.