Commercial Banks PDF

CHAPTER TWO: Commercial banks McGraw-Hill/Irwin copy tights@ 2014by the McGraw-Hill companies, Inc. All rights reserved  Section one objectives: 1. Define what a commercial bank is? and what are the bank’s Features ? 2. Understand Banking regulating and know regulatory agencies. 3....

CHAPTER TWO: Commercial banks McGraw-Hill/Irwin copy tights@ 2014by the McGraw-Hill companies, Inc. All rights reserved  Section one objectives: 1. Define what a commercial bank is? and what are the bank’s Features ? 2. Understand Banking regulating and know regulatory agencies. 3. know Banks mergers and banking privacy. 4. Know the Financial Service Competitors of Banks. 5. Distinguish between Traditional and recent Services Offered By Banks. 6. Trends Affecting Banks Today.  What is a bank? (( A bank is a financial institute and a financial intermediary that accept deposits and channels those deposited into lending activities, either directly by loaning or indirectly through capital markets.)) it's a connection between customers that have capital deficits and customers with capital surpluses.  Features of Bank: - Dealing in money - Individual company - Acceptance of deposit - Giving advances - Payment and withdrawal - Agency and utility services - profit and service orientation - Ever increasing functions - Connecting link - Banking business - Name identity  why regulate banks? - protection of depositors - Monetary and financial stability - Efficient and competitive financial system - Consumer protection Regulatory agencies: Bank regulation in the United States: While most of countries have only one bank regulator, in the U.S., banking is regulated at both the federal and state level. Depending on its type of charter and organizational structure, a banking organization may be subject to numerous federal and state banking regulations. Unlike Switzerland and the United Kingdom (where regulatory authority over the banking, securities and insurance industries is combined into one single financial-service agency), the U.S. maintains separate securities, commodities, and insurance regulatory agencies separate from the bank regulatory agencies at the federal and state level. U.S. banking regulations address privacy, disclosure, fraud prevention, anti-money laundering, anti-terrorism, and the promotion of lending to lower-income populations. Some individual cities also enact their own financial regulation laws 1- Federal Reserve system: The Federal Reserve is the central bank of the United States. The central banking system of the United States, called the Federal Reserve system, was created in 1913 by the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907.  The Federal Reserve duties today - according to official Federal Reserve documentation- are to: - conduct the nation's monetary policy - supervise and regulate banking institutions - maintain the stability of the financial system - provide financial services to depository institutions, the U.S. government, and foreign official institutions. 2- Federal Deposit Insurance Corporation The Federal Deposit Insurance Corporation (FDIC) is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, up to $250,000 per depositor per bank. As of November 18, 2010, the FDIC: -Insures deposits at 6,800 institutions. -Examines and supervises certain financial institutions for safety and soundness, -Performs certain consumer-protection functions, -Manages banks in receiverships (failed banks). Since the start of FDIC insurance on January 1, 1934, no depositor has lost any insured funds as a result of a bank failure. 3- Office of the Comptroller of the Currency The Office of the Comptroller of the Currency is a U.S. federal agency established by the National Currency Act of 1963. It serves to regulate, and supervise all national banks and the federal branches and agencies of foreign banks in the United States. 4- Office of Thrift Supervision The Office of Thrift Supervision is a U.S. federal agency under the Department of the Treasury. It was created in 1989 as a renamed version of another federal agency (that was faulted for its role in the Savings and loan crisis). Like other U.S. federal bank regulators, it is paid by the banks it regulates. On July 21, 2011, the Office of Thrift Supervision became part of the Office of the Comptroller of the Currency. Bank mergers and closures: Bank mergers happen for many reasons in normal business, for example: - Create a single larger bank in which operations of both banks can be streamlined. - To acquire another bank's brands. - When regulators close the institution due to unsafe and unsound business practices or inadequate capitalization and liquidity. Banks that are in danger of failing are taken over by the FDIC, administered for awhile, then sold or merged with other banks. The FDIC maintains a list of banks showing institutions seized by regulators. Banking privacy: - In the United States, banking privacy and information security is not protected through a singular law. The regulation of banking privacy is typically undertaken by a sector-by-sector basis. - The most prominent federal law governing banking privacy in the U.S. is the Gramm- Leach-Bliley Act (GLB). he regulates the disclosure, collection, and use of non-public information by banking institutions. - Additionally, the Federal Trade Commission (FTC) serves as the primary protector of banking privacy by fining violators of federal and state banking privacy laws. - Unlike banking in Switzerland or other European countries, violations of banking privacy are usually a civil offense not a criminal one. However, the Financial Industry Regulatory Authority (FINRA) offers numerous banking privacy provisions within its statutes.  1-19 The Financial Service Competitors of Banks  Savings Associations  Credit Unions  Money Market Funds  Mutual Funds (Investment Companies)  Hedge Funds  Security Brokers and Dealers  Investment Banks  Finance Companies  Financial Holding Companies  Life and Property-Casualty Insurance Companies  1-20 Traditional Services Offered By Banks  Carrying Out Currency Exchange  Discounting Commercial Notes and Making Business Loans  Offering Savings Deposits  Safekeeping of Valuables  Supporting Government Activities with Credit  Offering Checking Accounts  Offering Trust Services  1-21 More Recent Services Offered by Banks:  Granting Consumer Loans  Providing Financial Advice  Managing Cash  Offering Equipment Leasing  Selling Insurance Policies  Selling Retirement Plans  1-22 Trends Affecting Banks and Other Financial Service Firms Today Service Proliferation Rising Competition Government Deregulation Increased Interest Rate Sensitivity Technological Change and Automation Consolidation and Geographic Expansion E-Banking and E-Commerce Convergence Globalization  Section two objectives: 1.Know types of banks and their features. 2. Have an idea about Structure and Organization of Banks in Europe. 3. Have an idea about Structure and Organization of Banks in Asia  3-24 Types of banks: 1- Community Banks or Retail Banks  ‘Typical’ Size is $300 Million  Organizational Chart is Not Complicated  Significantly Affected by Health of Local Economy  Generally Know their Customers Well – Relationship Lending  3-25 2- Money Center or Wholesale Banks  Generally Multi-Billion Dollar Company.  Organizational Chart is Much More Complex.  Serve Many Different Markets with Many Different Services so are Better Diversified Geographically and by Product.  Able to Raise Large Amounts of Capital at Relatively Low Costs.  3-26 3- Unit Banks  Offer All Services From One Office.  One of the Oldest Kinds of Banks.  New Banks are Generally Unit Banks Until Can Grow and Attract More Resources.  3-27 4- Branch Banks  Offer Full Range of Services from Several Locations  Senior Management at the Home Office  Each Branch has its Own Management Team with Limited Decision Making Ability  Some Functions are Highly Centralized, While Others are Decentralized  3-28 Reasons for Growth of Branching  Exodus of Population to Suburban Communities  Increased Bank Failures in Recent Years  Business Growth  3-29 5- Electronic Branches  Internet Banking Services  Automated Teller Machines (ATMs)  Point of Sale (POS) Terminals  3-30 6-Virtual Banks  Provide their Services Exclusively Through the Web  Can Generate Cost Savings  Have Not Yet Demonstrated They Can Be Consistently Profitable  3-31 Structure and Organization of Banks in Europe Germany: Largest European Banking Industry ▫ Private Sector Banks ▫ Public Sector Banks France: Second in Number of Banks Belgium: Dominated by Five Large Banks Great Britain: Dominated by a Half Dozen Banking Firms Switzerland: Credit Suisse and UBS and Many Smaller Firms Italy: Privatized Banking in the 1990’s  3-32 Structure and Organization of Banks in Asia China: Large Dominating Government Sector, Although Private Banks are Expanding. Japan: Dominated by the Big Four Financial Group with More than One Hundred Smaller Domestic Banks and Seventy Foreign Banks Thank you