1. Commercial Bank Structure and Bank consolidation KANGWON RACHAEL CAROLINE XIAOYI

2. Structure of the U.S. Commercial Banking Industry and the Deregulation  There are far more commercial banks in the U.S. than in any other country in the world. What caused this?  What did the large number of commercial banks in the U.S. reflect: the lack of competition or the presence of vigorous competition?  What stimulated bank consolidation? Is it good or bad?

3. GROUP 5 Contents 1. Introduction. 3. Restriction. 4. Bank Consolidation 2. Commercial Bank 5. Conclusion

4. GROUP 5 CONTENTS 1.Structure of U.S. Commercial Bank a) Restrictions on Branching b) Response to Branching Restriction 1) Bank Holding Companies. 2) Automated Teller Machines 2. Bank Consolidation and Nationwide Banking a) The Riegle-Neal interstate Banking and Branching Efficiency Act

5. What caused this? THERE ARE FAR MORE COMMERCIAL BANKS IN THE U.S. THAN IN ANY OT HER COUNTRY IN THE WORLD.

6. What exactly is a Commercial Bank?

7. Commercial Banks: The Facts  Currently there are 7,000 commercial banks in the U nited States  40% of banks have less than $100,000 million in a ssets  The Glass-Stegall Act passed in1933 required that c ommercial banks engage only in banking activities. This separation is no longer enforced.

8. Does this mean that there is greater competition in the United State s than in other countries? IN OTHER COUNTRIES, FAR FEWER BANKS DOMIN ATE THE INDUSTRY

9. NO!

10. The McFadden Act THE PURPOSE: WHAT DID IT DO? To give national banks competitive equality with state- chartered banks It prohibited interstate branching by allowing each national bank to branch only within the state in which it is situated.

11. The McFadden Act  Allowed many small bank s to stay in business becau se larger banks were not al lowed to open near them.  In an effort to protect small banks the regulation actual ly hurt consumers by limiti ng competition

12. Why was this type of strict regulation allowed to go on in the United States?  Fear of large banks  There was a bad sentiment towar d certain large banks because in the 19 th century banks would foreclose on farmers who could not pay their debts.

13. What does the large number of commercial banks in the U.S. reflect? Lack of competition? or Presence of competition?

14. Presence of Competition  McFadden Act of 1927  Bank Holding Companies  Riegle- Neal Interstate Banking  Branching Efficiency act

15. Number of Insured Commercial Banks

16. Cause and Fact  Bank failures running at a rate of over 100 per year from 1985 to 1992.  In the years 1985-1992, the number o f banks declined by 3000, more than d ouble the number of failures.  In the period 1992-2007, when the ba nking industry returned to health, the number of commercial banks declined by a little over 3,800, less than 5% of which were bank failures, and most of these were of small banks.

17. Bank Consolidation  Banks have been merging to create la rger entities or have been buying up o ther banks

18. Reason & Formation  Best interest if they allowed ownershi p of banks across state lines.  Could gain the benefits of diversificati on because they would now be able to make loans in many states rather tha n just one.

19. Reason & Formation  Loosening of restrictions on interstate branching is the development of a ne w class of banks.  Superregional banks  E.g. Bank of America of Charlotte, Nor th Carolina, and Banc One of Columbu s, Ohio.

20. Reason & Formation Cont.  The advent of the Web and improved computer technology is another factor driving bank consolidation.

21. Good Things?  Con 1)Eliminate small banks 2)A few banks make the banking busin ess less competitive

22. Good Things?  Pro 1) Increase competition 2) Increase the efficiency of the bankin g sector 2)Take advantage of economies of scal e and scope