1. Copyright © 2000 Addison Wesley Longman Slide #16-1 Chapter Sixteen COMMERCIAL BANKING INDUSTRY: STRUCTURE AND COMPETITION

2. Copyright © 2000 Addison Wesley Longman Slide #16-2 Historical Development of the Banking Industry Outcome: Multiple Regulatory Agencies 1. Federal Reserve 2. FDIC 3. Office of the Comptroller of the Currency 4. State Banking Authorities 金融監理一元化 ? 金融局金融局

3. Copyright © 2000 Addison Wesley Longman Slide #16-3 Structure of the Commercial Banking Industry

4. Copyright © 2000 Addison Wesley Longman Slide #16-4 Ten Largest U.S. Banks

5. Copyright © 2000 Addison Wesley Longman Slide #16-5 Branching Regulations Branching Restrictions: Very anticompetitive Response to Branching Restrictions 1. Bank Holding Companies A. Allowed purchases of banks outside state B. BHCs allowed wider scope of activities by Fed C. BHCs dominant form of corporate structure for banks 2. Nonbank Banks Not subject to branching regulations, but loophole closed in 1987 3. Automated Teller Machines Not considered to be branch of bank, so networks allowed  To issue commercial paper and lend to commercial bank Deposit 與 loan 只做一樣

6. Copyright © 2000 Addison Wesley Longman Slide #16-6 Bank Consolidation and Number of Banks 1. 規模經濟，成本  2. 多角化，風險  3. 出現 super regional bank v.s. money center bank

7. Copyright © 2000 Addison Wesley Longman Slide #16-7 Nationwide Banking and Bank Consolidation Bank Consolidation: Why? 1.Branching restrictions weakened 2.Development of superregional banks Riegle-Neal Act of 1994 1.Allows full interstate branching 2.Promotes further consolidation Future of Industry Structure Will become more like other countries, but not quite: Several thousand, not several hundred

8. Copyright © 2000 Addison Wesley Longman Slide #16-8 Nationwide Banking and Bank Consolidation Bank Consolidation: A Good Thing? 壞處 Cons: 1. Fear of decline of small banks and small business lending, 使金融業變成 less competitive 2. Rush to consolidation may increase risk taking 好處 Pros: 1. Community banks will survive  事實如此，如紐約州、加州 2. Increase competition  使無效率之銀行退出市場 3. Increased diversification of bank loan portfolios: lessens likelihood of failures 自然 or 強迫 ?

9. Copyright © 2000 Addison Wesley Longman Slide #16-9 Separation of Banking and Securities Industries: Glass-Steagall ：已被取消 Case for Glass-Steagall 1. FDIC gives unfair advantage to banks 2. Allowing banks into underwriting is dangerous because FDIC promotes too much risk taking  moral hazard 3. Potential conflicts of interest Case Against Glass-Steagall 1. Decreases competition 2. Unfair to banks 3. Hinders diversification Will Separation Continue? Fed, OCC, FDIC are allowing banks to engage in underwriting activities 銀行業的資金成本較便宜 若銀行承銷其貸款客戶的股票 證券業已可像銀行一樣吸收存款，而銀行卻不 能進入獲利較佳的證券業務 Citibank 和 Traveler 1998 年之合併其實是違法 !

10. Copyright © 2000 Addison Wesley Longman Slide #16-10 Separation in Other Countries 1. Universal banking: Germany 2. British-style universal banking 3. U.S./Japan separation Separation of Banking and Securities Industries: Glass-Steagall 面臨別國銀行 ( 不見得有 G-S 法案之限制 ) 之競爭  可以 underwriting ，但需在不 同的子公司，較不能持有公司 股票，較少和保險結合 不准買公司 股票。可有 BHC 不能有 BHC 可以 持有公司股票

11. Copyright © 2000 Addison Wesley Longman Slide #16-11 International Banking Why Rapid Growth 1.Rapid growth of international trade 2.Banks abroad can pursue activities not allowed in home country 3.Tap into Eurodollar market U.S. Banks Overseas 1.Regulators A. Federal Reserve (Regulation K) 2.Structure A. Edge Act Corporations B. International Banking Facilities  為了與外國銀行競爭，成立了 OBU (offshore banking unit), 存貸皆外幣為 之，且不課稅，不受存款準備率之規 範

12. Copyright © 2000 Addison Wesley Longman Slide #16-12 Foreign Banks in U.S. 1.Regulators A. Same as for U.S. domestic banks 2.Structure A. 500 offices in U.S. B. 20% of total U.S. bank assets International Banking

13. Copyright © 2000 Addison Wesley Longman Slide #16-13 Ten Largest Banks in the World

14. Copyright © 2000 Addison Wesley Longman Slide #16-14 Financial Innovation and Decline in Traditional Banking Innovations Increasing Competition against commercial banks 1. Money market mutual funds — Avoids deposit rate ceilings and reserve requirements 2. Junk bonds — Result of better info in credit markets 3. Commercial paper market — Result of better info in credit markets and rise in money market mutual funds 4. Securitization — Result of better info in credit markets and computer technology 由於 computer 及 telecommunication 2/3 的自用住宅來抵押貸款已被證券化了 ! 評估信用風險 降低交易成本

15. Copyright © 2000 Addison Wesley Longman Slide #16-15 The Decline in Banks as a Source of Finance For nonfinancial firms

16. Copyright © 2000 Addison Wesley Longman Slide #16-16 Bank Profitability

17. Copyright © 2000 Addison Wesley Longman Slide #16-17 Share of Noninterest Income

18. Copyright © 2000 Addison Wesley Longman Slide #16-18 Decline in Traditional Banking Loss of Cost Advantages in Acquiring Funds (Liabilities ) π  i  then disintermediation because 1. Deposit rate ceilings and regulation Q 2. Money market mutual funds 3. Foreign banks have cheaper source of funds: Japanese banks can tap large savings pool

19. Copyright © 2000 Addison Wesley Longman Slide #16-19 Decline in Traditional Banking Loss of Income Advantages on Uses of Funds (Assets) 1. Easier to use securities markets to raise funds: commercial paper, junk bonds, securitization 2. Finance companies more important because easier for them to raise funds 一般企業 Issue C.P. 其他非銀行之金融機構也可以 make loan 之後再加以證券化 由於 computer tech 使得：交易成本  ；資訊收集容易，風險易評估

20. Copyright © 2000 Addison Wesley Longman Slide #16-20 Bank Failures

21. Copyright © 2000 Addison Wesley Longman Slide #16-21 Banks' Response Loss of cost advantages in raising funds and income advantages in making loans causes reduction in profitability in traditional banking 1. Expand lending into riskier areas: e.g., real estate 2. Expand into off-balance sheet activities 3. Creates problems for U.S. regulatory system Similar problems for banking industry in other countries