Establishing New Banks, Branches & ATMs

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Presentation transcript:

Establishing New Banks, Branches & ATMs Chapter 4

Federal (National) Bank Brings added prestige More Costly Subject to stricter regulatory framework Larger deposits/loan Technical assistance from national bank authorities Part of Federal Reserve System Federal banking rules can pre-empt (prevent) state laws

State Bank Easier to secure state charter Less costly Not part of federal reserve system Subject to state law Customized service

Factors affecting regulatory decisions regarding Chartering a New Bank Target market (service area) Competing financial institutions within the service area Sizes of business in the service area Level of competition Traffic pattern Population density, growth, income, age, education, occupation etc. Financial history of the service area Ownership of the stocks (capital) Experience of the organizers Projected deposits, loans, revenues and expenses (quality of the projection)

Chartering a New Bank External Factors Internal Factors

External Factors Level & Growth of Economic Activity Need for a New Financial Institution Level of Competition

Internal Factors Qualification & Quality of Management Experience Contacts

Factors Affecting Sites for Full-Service Branches Traffic count Business Activities Population age, density and growth Population per branch Financial-service competitor

Establishing a Full-Service Branch (Capital Budgeting Decision) Expected Rate of Return - Compare the expected rate of return of the branch with the required/acceptable rate of return or with cost of capital of the bank Geographic Diversification - New branch increases or decreases the return and risk of the bank

Decision to Install a New ATM (Capital Budgeting Decision) NPV of New ATM = Present value of the stream of cash savings from new ATM discounted at required return or cost of capital Minus (-) Initial cash outlay for the new ATM Install ATM if the NPV is Positive

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