Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994

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Questions and Answers

What did the Riegle-Neal Act of 1994 allow holding companies to do?

Acquire banks throughout the United States without needing any state's permission and establish branch offices across state lines

Why did the federal government enact and states support interstate banking laws?

To bring in new capital to revive struggling local economies, expand financial-service offerings, and increase geographical diversification

What was one consequence of advances in financial-services delivery technology?

Permitting service to customers over broader geographic areas

Why did regulators believe larger financial firms may be more desirable?

Because they may be more efficient and less prone to failure Signup and view all the answers

What was a goal of the largest financial firms?

To geographically diversify their operations and open up new marketing opportunities Signup and view all the answers

What was a challenge posed by nonbank financial institutions?

They faced few restrictions on their ability to expand nationwide Signup and view all the answers

What is a common organizational structure adopted by unit financial firms as they grow in size?

A branching organization Signup and view all the answers

What types of services are typically offered by a branching organization?

Full range of services from several locations, including head office and full-service branch offices Signup and view all the answers

Where is senior management of a branching organization usually located?

At the home office Signup and view all the answers

What is the purpose of a supporting network in a branching organization?

To offer limited services through drive-in windows, ATMs, computers, point-of-sale terminals, the Internet, and other advanced communications systems Signup and view all the answers

What was the proportion of American banks operating a full-service branch office during the Great Depression of the 1930s?

One in five Signup and view all the answers

What was the trend in branching expansion by the beginning of the 21st century?

Average U.S. banks had expanded their branching operations Signup and view all the answers

What is the dominant supplier of credit and payments services to businesses and households?

Commercial banking Signup and view all the answers

What percentage of total industry assets do the smallest financial institutions hold?

Little more than one percent Signup and view all the answers

Which banks hold about 6 trillion dollars combined?

Citigroup, JP Morgan Chase, and the Bank of America Signup and view all the answers

What is happening to the banking industry in terms of size and concentration of assets?

It is becoming increasingly concentrated Signup and view all the answers

What is exhibited in Exhibit 3–1?

The Structure of the U.S. Commercial Banking Industry, December 31, 2009 Signup and view all the answers

In what year was the data exhibited in Exhibit 3–1 collected?

2009 Signup and view all the answers

What factor has fueled the rise of branching, bank holding companies, and financial holding companies?

Their ability to carry out mergers and acquisitions Signup and view all the answers

How many bank mergers have occurred in the United States since 1980?

Over 12,000 Signup and view all the answers

What type of firms are banking's principal competitors?

Credit unions, savings associations, finance companies, insurance firms, security dealers, hedge funds, and other financial firms Signup and view all the answers

What is meant by 'convergence' in the financial-services industry?

Great structural and organizational changes that have spilled over into one financial-service industry after another Signup and view all the answers

Why have some financial institutions become some of the largest businesses on the planet?

Despite not necessarily operating at lower costs, they have become large through mergers and acquisitions Signup and view all the answers

How have financial firms been affected by rising operating costs and rapidly changing technology?

They have been forced to adapt and change their structures and offerings Signup and view all the answers

What has been a notable exception to the trend of financial firms changing their structures and offerings?

Hedge funds, until very recently Signup and view all the answers

What is a result of the consolidation of the financial-services industry?

Financial firms are starting to look alike, especially in the menu of services offered Signup and view all the answers

What is expense-preference behavior in a financial firm?

When management prioritizes benefits for managers over stockholders or the public. Signup and view all the answers

What does Agency Theory examine in a firm?

The relationships between the firm's owners and managers, and mechanisms to maximize owner welfare. Signup and view all the answers

What is a key factor in reducing agency costs and improving company performance?

Effective corporate governance. Signup and view all the answers

What is the primary objective of a firm that exhibits expense-preference behavior?

To benefit managers, rather than stockholders or the public. Signup and view all the answers

What is the primary role of managers in a firm, according to Agency Theory?

To act as agents for the owners (stockholders). Signup and view all the answers

What is the goal of effective corporate governance?

To compel managers to maximize the welfare of the firm's owners. Signup and view all the answers

What is the relationship between bank size, efficiency, and operating costs?

There appears to be an inverse relationship between bank size and operating costs per unit of service produced and delivered. Signup and view all the answers

What is a potential advantage of allowing interstate banking?

Increased efficiency and reduced operating costs. Signup and view all the answers

Study Notes

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994

Allows holding companies to acquire banks across the US without state permission
Enables the establishment of branch offices across state lines

Reasons for Enacting Interstate Banking Laws

Bringing in new capital to revive local economies
Expansion of financial-service offerings by nonbank financial institutions
Desire of large financial firms to diversify geographically and open new markets
Belief that larger financial firms are more efficient and less prone to failure
Advances in financial-services delivery technology, permitting service to customers over broader areas

Commercial Banking Industry

Dominant supplier of credit and payments services to businesses and households
Many small banks in the US, holding little more than 1% of total industry assets
Large banks, like Citigroup, JP Morgan Chase, and Bank of America, hold about $6 trillion combined
Industry is increasingly concentrated in both small and large financial firms

Branching Organizations

Larger financial firms establish branching organizations
Offer full range of services from multiple locations, including head office and full-service branch offices
May offer limited services through drive-in windows, ATMs, computers, point-of-sale terminals, internet, and advanced communications systems
Senior management located at the home office, with limited authority at each full-service branch

Mergers and Acquisitions

Fueled the rise of branching, bank holding companies, and financial holding companies
Over 12,000 bank mergers have occurred in the US since 1980
Bigger companies pursue smaller financial-service providers and purchase their assets

Changing Organization and Structure of Banking's Principal Competitors

Credit unions, savings associations, finance companies, insurance firms, security dealers, hedge funds, and other financial firms are affected by rising operating costs and rapidly changing technology
All financial firms are starting to look alike, especially in the menu of services offered (convergence)

Efficiency and Size of Financial Firms

Do bigger financial firms operate at lower costs?
Financial firm goals, such as expense-preference behavior and agency theory, impact operating cost, efficiency, and performance

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Description

The quiz is about the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, which allowed holding companies to acquire banks across the US and establish branch offices across state lines. It also covers the reasons behind the enactment of interstate banking laws.