Commercial Bank

Structure and Bank consolidation

KANGWON
RACHAEL
CAROLINE
XIAOYI

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?

Contents
GROUP 5

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

CONTENTS
GROUP 5

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

THERE ARE FAR MORE COMMERCIAL

BANKS IN THE U.S. THAN IN ANY OT
HER COUNTRY IN THE WORLD.
What caused this?

What exactly is a Commercial Bank?

Commercial Banks: The Facts

Currently there are 7,000 commercial banks i
n the United States
40% of banks have less than $100,000 million
in assets
The Glass-Stegall Act passed in1933 require
d that commercial banks engage only in bank
ing activities. This separation is no longer en
forced.

IN OTHER COUNTRIES, FAR FEWER BANKS

DOMINATE THE INDUSTRY

Does this mean that there is greater competition in the U

nited States than in other countries?

NO!

The McFadden Act

THE PURPOSE:
To give national
banks competitive
equality with statechartered banks

WHAT DID IT DO?

It prohibited interstate
branching by allowing
each national bank to
branch only within the
state in which it is
situated.

The McFadden Act

Allowed many small ba
nks to stay in business
because larger banks w
ere not allowed to open
near them.
In an effort to protect s
mall banks the regulati
on actually hurt consu
mers by limiting compe
tition

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 19th century
banks would foreclose on farmers
who could not pay their debts.

What does the large number of

commercial banks in the U.S. reflect?

Lack of competition?
or
Presence of competition?

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

Number of Insured Commercial Banks

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.

Bank Consolidation

Banks have been merging to create la

rger entities or have been buying up o
ther banks

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.

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.

Reason & Formation Cont.

The advent of the Web and improved

computer technology is another factor
driving bank consolidation.

Good Things?

Con
1)Eliminate small banks
2)A few banks make the banking busin
ess less competitive

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