1、1/36,1/36,Bank ManagementWeek 1 Section 2 Fundamental Forces of Change in Banking,School of Business Central South University,2/36,Learning Objectives,Banks in the past Goals and Functions of Bank Regulation Organizational Form of the Banking Industry Banking Business Models Fundamental Forces of Ch

2、ange Chinese Banking,3/36,1. What were banks in the past?,A commercial bank was defined as a firm that both accepted demand deposits（活期存款） and made commercial loans （商業(yè)貸款） Limitations on: Geographic Scope Products and Services,4/36,What were banks in the past?,Historically, commercial banks have bee

3、n the most heavily regulated companies. The Mcfadden Act of 1927 The Glass-Steagall Act of 1933 The Bank Holding Act of 1956 The Financial Modernization Act of 1999,5/36,What were banks in the past?,They were the safest and most conservative business. Although regulations limited opportunities and r

4、isks, they virtually guaranteed a profit. Resulted in a banking system with a large number of smaller banks Today, the traditional definition of a bank has been blurred by the introduction of new products and a wave of mergers. Two major services (accepted demand deposits and made commercial loans)

5、are offered by many financial services companies.,6/36,Two areas of changes,1. Traditional role of banks as financial intermediaries declined New products such as cash management accounts, mutual funds, commercial paper, and junk bonds have become more prevalent. Banks have responded by accepting lo

6、wer spreads, taking on more risk, and expanding their customer and product base.,7/36,2. Evolution of banking into nontraditional roles Expand into nontraditional areas and products to generate more fee income. Actively pursue the use of technology in the development and delivery of products Gramm-L

7、each-Bliley Act eliminates most of the remaining restrictions that have separated commercial banking, investment banking, and insurance for over 70 years,8/36,2. Goals and Functions of Bank Regulation,Ensure the Safety and Soundness of Banks Provide an Efficient and Competitive Financial System Prov

8、ide Monetary Stability Maintain the Integrity of the Payments System Protect Consumers from Abuses,9/36,The Central Bank,The Federal Reserve System Fundamental Functions Conduct monetary policy Provide and maintain the payments system Supervise and regulate banking operations Organization Board of G

9、overnors 12 Federal Reserve District Banks,10/36,The Central Bank,The Federal Reserve System Monetary Policy Tools Open Market Operations Open market purchases (sales) increase (decrease) reserves & the money supply Discount Rate Decreasing (Increasing) the discount rate makes bank borrowing less (m

10、ore) expensive, which leads to an increase (decrease) in the money supply Reserve Requirements Decreasing (Increasing) reserve requirements increases (decreases) the money supply,11/36,Consumer Protection,Reg. B Equal Credit Opportunity Cannot discriminate on the basis of sex, race, marital status,

11、religion, age, or national origin. Reg. Z Truth-in-Lending Requires disclosure of: Effective interest rates, total interest paid, total of all payments Why credit was denied,12/36,Gramm-Leach-Bliley Act,格雷姆-里奇-比利雷法(GLB Act）也就是1999年的金融現(xiàn)代化法案，它是在美國頒布的一項法律，用于控制金融機構處理個人信息的方式，這項法案包括三部分：財產(chǎn)保密條例、安全措施條例、托辭供應。

12、 其中財產(chǎn)保密條例，用于管制對私人財產(chǎn)信息的搜集和泄露； 安全措施條例，用于保證財政機構必須實現(xiàn)對私人信息的安全保護； 托辭供應用于禁止使用不正當?shù)耐修o訪問私人信息。 GLB法還要求金融機構給顧客一個書面的保密協(xié)議，以說明他們的信息共享機制。,13/36,3. Organizational Form of the Banking Industry,Unit banking versus Branch banking Branching and Interstate Expansion Bank Holding Companies Parent Subsidiaries One-Bank Hol

13、ding Companies Mutli-Bank Holding Companies,14/36,Exhibit 1.10 Organizational structure of the BHC,15/36,Organizational Form of the Banking Industry,Financial Holding Companies Can engage in financial activities not permitted in a bank or bank holding company Federal Reserve may not permit a bank ho

14、lding company to convert to a financial holding company if the bank holding company is not well capitalized, well managed, or did not receive a satisfactory rating on its most recent CRA exam.,16/36,Exhibit 1.11Organizational structure of a financial holding company,17/36,4. Banking Business Models,

15、Global Banks International presence Nationwide Banks Coast-to-coast presence Super-Regional Banks Extensive operations in a limited geographic area of the U.S. Regional Banks Specialty Banks,18/36,Exhibit 1.17 DISTRIBUTION OF THE NUMBER OF BANKS AND TOTAL ASSETS BY TOTAL ASSETS: 1995 - 2004,19/36,Ba

16、nking Business Models,Specialty Banks Also known as: Community Banks Independent Banks Typically have less than $1 billion in assets Organization,20/36,Exhibit 1.18 Organizational structure of an independent bank,21/36,Different size banks generally pursue different strategies,Small- to medium-size

17、banks continue to concentrate on loans but seek to strengthen the customer relationship by offering personal service. have generally rediscovered the consumer loan. The largest banks, in contrast, move assets off the balance sheet as part of their normal business. Because commercial and consumer loa

18、ns are risky relative to the available returns,22/36,Loan concentrations:Consumer and commercial credits,23/36,5. Fundamental Forces of Change,Deregulation/Reregulation Increased competition Investment banking Financial Innovation Securitization Globalization Advances in Technology,24/36,Fundamental

19、 Forces of Change 1) Deregulation/Reregulation,Deregulation is the process of eliminating existing regulation, such as the elimination of Regulation Q interest rate ceilings imposed on time and demand deposits offered by deposit institutions. Re-regulation is the process of implementing new restrict

20、ions or modifying existing controls on individuals and activities associated with banking.,25/36,Increased competition is quickly changing the nature of commercial banking. Deregulation was a natural response to increased competition rather than the catalyst(催化劑) of competition. Deregulation sped up

21、 the process, but did not necessarily start it.,26/36,Regulatory Dialectic（辨證）,Since World War II, banks and other market participants have consistently restructured their operations to circumvent（規(guī)避） regulation and meet perceived customer needs. In response, regulators or lawmakers would impose new

22、 restrictions, which market participants circumvented again.,27/36,Regulatory Pendulum(鐘擺),Customer Needs,Regulation & Re-regulation: Restrictions & New Restrictions,Banks: Innovation,Deregulation: Eliminate restrictions,28/36,Fundamental Forces of Change Increased Competition,Competition for Deposi

23、ts High inflation abruptly ended the guaranteed spread between asset yields and liability costs in the late 1970s. In 1973 several investment banks created money market mutual funds (MMMFs). Congress passed legislation enabling banks and thrift institutions to offer similar accounts.,29/36,Fundament

24、al Forces of Change Increased Competition,Competition for Loans Commercial paper: to prime corporate borrowers Junk bonds (are corporate securities that are unrated or rated Ba(BB) and lower and thus are not investment grade ): to Medium-sized lower-quality borrowers Results Loan yields and quality

25、fell Capital requirements increased,30/36,Fundamental Forces of Change Increased Competition,Competition for Payment Services Credit Cards Debit Cards Prepaid Cards CHIPS ACH,31/36,Volume, Dollar Value, and Average Transaction Size For Various Payment Instruments:1995-2000,32/36,Fundamental Forces o

26、f Change Increased Competition,Competition for Other Bank Services Trust Services Brokerage Services Data Processing Real Estate Appraisal Credit Life Insurance Personal Financial Consulting,33/36,Fundamental Forces of: Attractive Investment Banking Business,Investment banking includes three broad f

27、unctions: underwriting public offerings of new securities trading existing securities advising and financing mergers and acquisitions They are attractive to commercial banks because most investment banks already offer many banking services to prime commercial customers and high net worth individuals

28、 sell a wide range of products not available through banks can compete in any geographic market without the heavy regulation of the FRS, FDIC, and OCC. earn extraordinarily high fees,34/36,Fundamental Forces of Change: 2) Financial Innovation,Financial innovation is the catalyst behind the evolving

29、financial services industry and the restructuring of financial markets. Innovation may be caused by a bank wanting to: Enter into a new geographic market Enter into a new product market Deliver services less expensively Etc.,35/36,Fundamental Forces of Change: 3) Securitization,It is the process of

30、converting assets into marketable securities. The objectives behind securitizing include : Free capital for other uses Improve ROE(return on equity) via servicing income Diversify credit risk Obtain new sources of liquidity Reduce interest rate risk Generally, any loan that can be credit scored can

31、potentially be securitized.,36/36,Fundamental Forces of Change: Globalization,It is the gradual evolution of markets and institutions so that geographic boundaries do not restrict financial transactions. Clearly, only the largest firms can successfully compete worldwide. Globalization in financial s

32、ervices implies that the top layer of firms will consist of a few, very large consolidated organizations. Although product innovation and the acquisition of domestic firms by foreign firms has led to a removable of the physical borders that separate firms internationally, technology has clearly had

33、one of the most dramatic impacts on the globalization of markets.,37/36,Fundamental Forces of Change:Technology,Advances in Technology Advances in technology increase the scope of the global market place and competition Advances in technology also reduce the need for an intermediary by providing easy access to information Increasing competition by reducing the cost of being an information intermediary,38/36,5. Summary,Five fundamental forces have transformed the structure of m