1. Topic: 5 Structure of the U.S. Commercial Banking industry and the Deregulation

2. There are approximately 7,000 commercial banks in the United States. Compared to other nations the 10 largest banks in the U.S. hold only 50% of the total assets in the Industry.

3. Why are there so many commercial banks in the U.S.? This reflects past regulations and laws which restricted the ability of these financial institutions to open branches Examples of Policies that backed these regulations (McFadden Act of 1927 and the Douglas Amendments)

4. Bank Holding Companies A holding company is a corporation that owns several different companies. Many advantages to this form of corporate management. Can engage in other activities related to banking.

5. Current Example TD Ameritrade acquires 3 failed banks. These banks include: 1.) Riverside National Bank of Florida 2.) First Federal Bank of North Florida 3.) American First Bank Source: http://historiccity.com/2010/staugustine/news/florida/td-bank-acquires-three- area-failed-banks-3018

6. Structure of the U.S. Commercial Banking Industry and the Deregulation

7. From 1985-1992 bank failures were at a rate of over 100 per year. During this period banks declined by 3,000, more than double the number of failures. In the period 1992-2007, when the banking industry returned to health the number of commercial banks declined a little over 3,800, less then 5% of which were bank failures.

8. Structure of the U.S. Commercial Banking Industry and the Deregulation Causes of Number of Banks Decreasing in the U.S. Bank Failures Subprime Financial Crisis Bank Consolidation

9. Structure of the U.S. Commercial Banking Industry and the Deregulation Consolidation- The combining of separate companies, functional areas, or product lines, into a single one. Bank Consolidation-Banks merging to create larger entities or have been buying up other banks.

10. Structure of the U.S. Commercial Banking Industry and the Deregulation Reasons for Bank Consolidation Loophole mining by banks, which states have recognized its best interest in having banks have ownership across state lines Banks recognizing benefits in diversification of making loans in many states rather than just one Economics of scales have increased with improving computer technology

11. Structure of the U.S. Commercial Banking Industry and the Deregulation The Riegle-Neal Interstate Banking and Breaching Effiency Act of 1994. Overturned the McFadden Act and Douglas Amendment which prohibited interstate banking Established the basis for a true nationwide banking system Example of Nationwide bank: the merging of Bank of America and NationsBank

12. Structure of the U.S. Commercial Banking Industry and the Deregulation Bank Consolidation have increased substantially. One analysis is that the industry will wind up with only couple of hundred banks. Experts predict that consolidation surge will settle down. Merger between Chase Manhattan Bank and Chemical Bank and between Bank of America and NationsBank shows that shift in assets from small to large banks

13. Structure of the U.S. Commercial Banking Industry and the Deregulation Supporters of nationwide banking believe it will increase competition while critics believe it will drive out small banks, reduce competition and decrease lending to small companies. When New York State liberized in the 1962 the small banks were still doing well. Economist believe that bank consolidation will bring in numerous benefits. Reduction in lending to small businesses and inclination to take high risks are still major issues.

14. Separation of Banking and Other Financial Services The Glass-Steagall Act Allowed commercial banks to sell new offerings of government securities Prohibited banks to underwrite corporate securities or engaging in brokerage activities Prevented banks from real estate and insurance activities

15. Breaking down of the Separation Erosion of Glass-Steagall Act Federal Reserve used loophole in the act to allow bank holding companies to underwrite prohibited securities Allowing banks to underwrite corporate debt securities Allowing banks to underwrite stocks Engaging in some real estate and insurance activities

16. Breaking down of the Separation The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 The merging of Citicorp and Travelers Group in 1998 Allowed insurance companies and security firms to purchase banks Allow banks to underwrite insurance and securities as well as engage in real estate activities

17. Returning to a Separation of Banking? Events Happening Now: President Obama wanting Finance Reform Senators wanting to reinstate the Glass-Steagall Source: http://washingtonindependent.com/83193/a-guide-to-the-tangled- financial-reform-bill http://washingtonindependent.com/83193/a-guide-to-the-tangled- financial-reform-bill Senate proposing to break up big banks Source: http://dealbook.blogs.nytimes.com/2010/04/26/q-a-sanders-looks-at- financial-bill-from-the-left/ http://dealbook.blogs.nytimes.com/2010/04/26/q-a-sanders-looks-at- financial-bill-from-the-left/