PART Introductiontobankfinancialmanagementinthefinancial servicesindustry Chapter1Overviewofbankingandthefinancial servicesindustryChinaUniversityofMiningandTechnologySchoolofManagement李凯风 LEARNINGOBJECTIVES TounderstandthefunctionsofafinancialsystemTounderstandtherole importance andtherisksofbankingTodistinguishbetweendirectandindirectfinanceTounderstandthe decline ofbankingTodistinguishbetweentraditionalcommercialbankingandmodernbankingTounderstandthedimensionofbankcompetitionandhowregulationshapesthem CHAPTERTHEME Thischapterpresentsanintroductionandoverviewofbankingandthefinancial servicesindustry FSI Financial servicesfirms FSFs actasintermediariesintheallocationoffinancialresources Asfinancialmarketsbecomemorecomplete directfinancetendstoreducetheimportanceofcertainfinancialinstitutionsandtheprocessofindirectfinance Afinancial managementperspectiveemphasizestheimportanceofunderstandingtherisksofbankingandhowtomanagethem Bothmarketandregulatorydisciplinemonitorandrestrictbankrisktaking Explicitprice userconvenience andpublicconfidencearetheprimarydimensionsofbankcompetition KEYCONCEPTS IDEAS ANDTERMS KEYCONCEPTS IDEAS ANDTERMS Section1 ThefunctionsofafinancialsystemSection2 Financial servicesfirmsandthefinancial servicesindustrySection3 TypesandclassesofcommercialbanksSection4 Bankholdingcompanies thedominantorganizationalformSection5 IntermediationVSdisintermediationandindirectfinanceVSdirectfinanceSection6 Theendofbankingasweknowit Section7 TheroleofbankregulationandsupervisionSection8 Theregulatorydialectic strugglemodel Section9 TherisksofbankingSection10 Thedimensionsoffinancial servicescompetitionandtheroleofregulationinshapingthem Section1Thefunctionsofafinancialsystem Theprimaryfunctionofafinancialsystemis resourceallocation Section1Thefunctionsofafinancialsystem Clearandsettlepayments Aggregateanddisaggregatewealthandflowsoffunds Transfereconomicresources functions Accumulate processAnddisseminateinformation Providewaysformanaginguncertaintyandcontrollingrisk ProvidewaysfordealingWithincentiveandasymmetric Informationproblems Section2 Financial servicesfirmsandthefinancial servicesindustry Afinancialsystemcanbeviewedintermsoffinancial servicesindustry FSI consistingoffinance servicesfirms FSFs Banks Thriftinstitutions Insurancecompanies Pensionfunds Financecompanies Mutualfunds Nonfinancialcorporations ThemajorplayersintheFSI FSFs ThestructuralchangesoccurringintheFSIcanbedescribeasits ization TheroleofbanksintheFSITheviewthatcommercialbanksoperateintheFSImeansthattheirrolewilllookdilutedinthisframework Nevertheless commercialbanksarestillthekingpinsoftheFSI Institutionalization Securitization Globalization Privatization ization KEYCONCEPTS Section3 Typesandclassesofcommercialbanks ThesearevarioustypesandclassesofcommercialbanksintheUnitedStates Box1 1andTable1 1 TABLE1 1 Charter federalorstateagency Nationalbank officeoftheComptrolleroftheCurrency OCC Statebank 50states D C Federalregulation agency Nationalbank OCC Statememberbank FederalReserve State insurednonmemberbank FDIC Bankholdingcompany BHC FederalReserve BanksorBHCswith500shareholdersormore SEC StructureororganizationformUnitBankBranchBankHolding companybankOne bankholdingcompany OBHC Multibankholdingcompany MBHC TypeofbusinessWholesalebankRetailbankWholesale retailbank allthingstoallcustomers Privatebank Shadow bankGeographicmarketCommunity local bankRegionalbankSuperregionalbankMultinational money center bankFederalreservesizeclasses byassets TenlargestbanksBanksranked11ththrough100thBanksranked101ththrough1000thBanksnotrankedamongthe1000largest communitybanks Section4 Bankholdingcompanies thedominantorganizationalform Becausebankholdingcompanies BHCs arethedominantorganizationalforminU S banking theydeservecloserscrutiny Usingtotaldepositsasthefocalvariable Table1 2reflectsthedominanceofBHCsamongbanksandalsoamongfederallyinsureddepositoryinstitutions andshowthatdominancehasincreasedfrom1984to1994 PanelAofFigure1 1presentsanexampleofaBHC sorganizationalstructure ABHC snonbanksubsidiariesoraffiliatesarerestrictedfromengaginginnonbankingactivitiesnotapprovedbytheFed Table1 2TheDistributionofFederallyInsuredDepositoryInstitutionsbyTypeofInstitution 1984and1994 1984MeanDepositsDepositsperfirmNumberPercent billionsPercent millionsTypeofInstitutionofFirmsofTotalofdollars ofdepositsdollars Bankingorganizations11 34238 01 613 761 4142 3Independentbanks5 69819 1209 98 036 8One bankholdingcompanies4 92616 5467 717 894 9Multibankholdingcompanies7182 4936 135 61 303 7Thriftinstitutions3 41411 4929 835 4272 3Savingsandloanassociations2 8829 6697 526 5242 0Federalsavingsbanks2640 9121 64 6460 6Statesavingbanks2680 9110 74 2413 0Creditunions15 12650 684 13 25 6Total29 882100 02 627 6100 087 9 1994Bankingorganizations7 89836 12 382 771 7301 7Independentbanks2 63412 0170 05 164 5One bankholdingcompanies4 46420 4523 015 7117 2Multibankholdingcompanies8003 71 689 650 92 112 1Thriftinstitutions2 0589 4684 520 6332 6Savingsandloanassociations7763 5147