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Questions and Answers

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

Central banks

Investment banks

Savings and loan associations

Commercial banks (correct)

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

10%

1% (correct)

20%

How much do Citigroup, JP Morgan Chase, and the Bank of America hold in combined assets?

1 trillion dollars

9 trillion dollars

3 trillion dollars

6 trillion dollars (correct)

What is the trend observed in the banking industry?

Increasing concentration Signup and view all the answers

What is the characteristic of many banks in the United States compared to global standards?

Small by global standards Signup and view all the answers

What is the significance of commercial banks in the financial industry?

They are the dominant suppliers of credit and payments services Signup and view all the answers

What has led to marked differences in the internal organization of banks and other service providers?

The great differences in size across the industry Signup and view all the answers

What is one characteristic of community banks?

They are devoted to the markets for smaller, locally based deposits and loans Signup and view all the answers

What is the opposite of a retail bank?

A wholesale bank Signup and view all the answers

What is a common feature of community banks?

Close contact between top management and division staff Signup and view all the answers

What has been happening to community banks in terms of numbers and industry share?

They have been losing ground in numbers and industry share Signup and view all the answers

What was the approximate number of community banks in 1985?

14,000 Signup and view all the answers

What was the approximate number of community banks in 2010?

6,000 Signup and view all the answers

What is one challenge that community banks face?

Keeping up with new regulations Signup and view all the answers

What is the term for banks acquired by holding companies?

Affiliated banks Signup and view all the answers

What is the result of holding company expansion in the number of banking organizations?

A sharp decline Signup and view all the answers

What is the benefit of holding company banking according to its supporters?

Greater efficiency and more services Signup and view all the answers

What is the comparison of profitability between holding company banks and independent banks?

Holding company banks are more profitable Signup and view all the answers

What is the criticism of holding company banking by critics?

Reducing competition Signup and view all the answers

What is the anecdotal evidence regarding multibank holding companies?

They drain scarce capital from some communities Signup and view all the answers

What is the comparison of failure rates between holding company banks and independent banks?

Holding company banks have a lower failure rate Signup and view all the answers

What are banks not owned by holding companies known as?

Independent banks Signup and view all the answers

What is the main topic of Chapter Three?

The Organization and Structure of Banking and the Financial-Services Industry Signup and view all the answers

What is one of the factors that determines how a financial institution is organized?

Both its role and size Signup and view all the answers

What has changed dramatically in the financial-services industry?

The structure, size, and types of organizations Signup and view all the answers

What is discussed in Chapter 1?

The roles and services of the modern bank and its competitors Signup and view all the answers

What has evolved over the years?

Bankers and the managers of competing financial institutions Signup and view all the answers

What is the focus of this chapter?

The organization and structure of banking and the financial-services industry Signup and view all the answers

What is one of the key topics of Chapter Three?

The Organization and Structure of Banks and the Banking Industry Signup and view all the answers

What has influenced the organization of financial institutions?

Many factors beyond role and size Signup and view all the answers

What is a unique characteristic of financial holding companies (FHCs) under the Gramm-Leach-Bliley (GLB) Act?

Each affiliated firm has its own capital, management, and profits or losses separate from other affiliates Signup and view all the answers

What is a benefit of financial holding companies (FHCs) to their affiliates?

Some protection against companywide losses Signup and view all the answers

What was a result of the creation of financial holding companies (FHCs)?

Consolidation and convergence within the industry Signup and view all the answers

What type of services can financial holding companies (FHCs) offer?

Dealing in and underwriting securities and selling and underwriting insurance Signup and view all the answers

What is a characteristic of financial holding companies (FHCs)?

Each affiliate has its own capital, management, and profits or losses Signup and view all the answers

What is the name of the Act that defines financial holding companies (FHCs)?

Gramm-Leach-Bliley (GLB) Act Signup and view all the answers

Study Notes

The Organization and Structure of Banking and the Financial-Services Industry

The chapter discusses the evolution of banking organizations and their structures over the years, leading to changes in the financial-services industry.

The Organization and Structure of the Commercial Banking Industry

Commercial banking is the dominant supplier of credit and payments services to businesses and households.
Many banks in the United States are small, holding little more than 1% of total industry assets.
In contrast, some of the largest financial service organizations, such as Citigroup, JP Morgan Chase, and the Bank of America, hold around 6 trillion dollars combined.
Banking continues to be increasingly concentrated in both small and large financial firms.

Internal Organization of the Banking Firm

Size differences across the industry have led to marked differences in internal organization and the variety of financial services offered.
Community banks, which are devoted to smaller, locally-based deposits and loans, are often referred to as retail banks.
These banks are usually significantly impacted by changes in the local economy and new regulations.
There were around 14,000 community banks in 1985, but only about 6,000 in 2010.

The Array of Organizational Structures and Types in the Banking Industry

Holding company expansion has led to a sharp decline in the number of independently owned banking organizations.
Banks acquired by holding companies are referred to as affiliated banks, while those not owned by holding companies are known as independent banks.
Holding company banking has been blamed for reducing competition, but supporters claim it leads to greater efficiency, more services, and higher profits.

Financial Holding Companies (FHCs)

Financial holding companies (FHCs) are a special type of holding company that can offer a broad range of financial services, including securities and insurance.
FHCs have their own capital, management, and profits or losses separate from those of other affiliates.
This structure provides some protection against companywide losses.
FHCs have led to consolidation and convergence within the industry.

Mergers and Acquisitions

Mergers and acquisitions have changed the structure, size, and types of organizations dominating the financial-services industry today.

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