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    Chapter 01

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    shamsabilan370

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    © All Rights Reserved
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    Chapter 01

    Uploaded by

    shamsabilan370
    5 views16 pages

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    5 views16 pages

    Chapter 01

    Uploaded by

    shamsabilan370

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    © All Rights Reserved
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    You are on page 1of 16

    Chapter One

    An Overview of the Changing


    Financial- Services Sector
    1-2

    Key Topics

    • Powerful Forces Reshaping the Industry


    • What Is a Bank?
    • The Financial System and Competing Financial-
    Service Institutions
    • Old and New Services Offered to the Public
    • Key Trends Affecting All Financial-Service Firms
    McGraw-Hill/Irwin
    © 2008 The McGraw-Hill Companies, Inc., All Rights
    Bank Management and Financial Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
    Reserved.
    1-3

    Introduction
    • Banks are the principal source of credit (loanable funds)
    for millions of individuals and families and for many
    units of government

    • Worldwide banks grant more installment loans to


    consumers (individuals and families) than any other
    financial-service provider

    • The assets held by U.S. banks represent about one-fifth


    of the total assets
    ▫ In other nations banks hold half or more of all assets in the
    financial system

    McGraw-Hill/Irwin
    © 2008 The McGraw-Hill Companies, Inc., All Rights
    Bank Management and Financial Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
    Reserved.
    1-4

    What Is a Bank?
    • A bank can be defined in terms of:
    1. The economic functions it performs
    2. The services it offers its customers
    3. The legal basis for its existence

    • Historically, banks have been recognized for the great


    range of financial services they offer
    ▫ Bank service menus are expanding rapidly today to include
    investment banking, insurance protection, financial planning,
    advice for merging companies, the sale of risk-management
    services to businesses and consumers, and numerous other
    innovative financial products

    McGraw-Hill/Irwin
    © 2008 The McGraw-Hill Companies, Inc., All Rights
    Bank Management and Financial Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
    Reserved.
    1-5

    What Is a Bank? (continued)


    • The Legal Basis for Banking
    ▫ A bank is any business offering deposits subject to
    withdrawal on demand and making loans of a commercial or
    business nature

    ▫ Congress then defined a bank as any institution that could


    qualify for deposit insurance administered by the Federal
    Deposit Insurance Corporation (FDIC)
    ▫ Under federal law in the U.S., a bank had come to be defined,
    not so much by its array of service offerings, but by the
    government agency insuring its deposits

    McGraw-Hill/Irwin
    © 2008 The McGraw-Hill Companies, Inc., All Rights
    Bank Management and Financial Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
    Reserved.
    1-6

    EXHIBIT 1-1 The Many Different Kinds of Financial-Service


    Firms Calling Themselves Banks

    McGraw-Hill/Irwin
    © 2008 The McGraw-Hill Companies, Inc., All Rights
    Bank Management and Financial Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
    Reserved.
    1-7

    What Is a Bank? (continued)


    • Money-Centered Banks vs. Community Banks
    ▫ Money-center banks
    ▫ Industry leaders
    ▫ Cover whole regions, nations, and continents
    ▫ Offer the widest possible menu of financial services
    ▫ Acquire smaller businesses
    ▫ Face tough global competition
    ▫ Community banks
    ▫ Much smaller
    ▫ Service local communities and towns
    ▫ Offer a narrower, but often more personalized, menu of
    financial services
    McGraw-Hill/Irwin
    © 2008 The McGraw-Hill Companies, Inc., All Rights
    Bank Management and Financial Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
    Reserved.
    1-8

    The Financial System and Competing


    Financial-Service Institutions
    • Roles of the Financial System
    ▫ The primary purpose of the financial system is to encourage
    saving and to transfer those savings to individuals and
    institutions planning to invest and needing credit to do so

    ▫ This process of encouraging savings and transforming savings


    into investment spending causes the economy to grow, new jobs
    to be created, and living standards to rise

    ▫ The financial system also provides a variety of supporting


    services:
    ▫ Payment services
    ▫ Risk protection services
    ▫ Liquidity services
    McGraw-Hill/Irwin
    © 2008 The McGraw-Hill Companies, Inc., All Rights
    Bank Management and Financial Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
    Reserved.
    1-9

    The Financial System and Competing


    Financial-Service Institutions (continued)
    • The Competitive Challenge for Banks
    ▫ Lately, the financial market share that banking comprised has
    fallen

    ▫ Some authorities in the financial-services field fear that this


    apparent erosion of market share may imply that traditional
    banking is dying
    ▫ Other experts counter that banking is not dying but changing by
    offering new services and changing its form

    ▫ The banking industry’s largest customers have found ways around


    banks to obtain the funds that they need
    ▫ Borrowing in the open market

    ▫ Perhaps banking is being


    McGraw-Hill/Irwin
    Bank Management and Financial
    “regulated
    © 2008 The to McGraw-Hill
    death” Companies, Inc., All Rights
    Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
    Reserved.
    1-10

    The Financial System and Competing


    Financial-Service Institutions (continued)
    • Leading Competitors with Banks
    ▫ Savings Associations
    ▫ Credit Unions
    ▫ Money Market Funds
    ▫ Mutual Funds (Investment Companies)
    ▫ Hedge Funds
    ▫ Security Brokers and Dealers
    ▫ Investment Banks
    ▫ Finance Companies
    ▫ Financial Holding Companies
    ▫ Life and Property/Casualty Insurance Companies

    McGraw-Hill/Irwin
    © 2008 The McGraw-Hill Companies, Inc., All Rights
    Bank Management and Financial Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
    Reserved.
    1-11

    The Financial System and Competing


    Financial-Service Institutions (continued)
    • Leading Competitors with Banks
    ▫ Financial-service providers are converging in terms of
    the services they offer
    ▫ The U.S. Financial Services Modernization (Gramm-
    Leach-Bliley) Act of 1999 has allowed many different
    types of financial firms to offer the public one-stop
    shopping for financial services
    ▫ The challenge of differentiating banks from other
    financial-service providers is difficult today

    McGraw-Hill/Irwin
    © 2008 The McGraw-Hill Companies, Inc., All Rights
    Bank Management and Financial Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
    Reserved.
    1-12

    Services Banks and Many of Their Closest


    Competitors Offer the Public
    • Services Banks Have Offered for Centuries
    ▫ Carrying Out Currency Exchange
    ▫ Discounting Commercial Notes and Making Business
    Loans
    ▫ Offering Savings Deposits
    ▫ Safekeeping of Valuables and Certification of Value
    ▫ Supporting Government Activities with Credit
    ▫ Offering Checking Accounts (Demand Deposits)
    ▫ Offering Trust Services

    McGraw-Hill/Irwin
    © 2008 The McGraw-Hill Companies, Inc., All Rights
    Bank Management and Financial Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
    Reserved.
    1-13

    TABLE 1–1 The Many Different Roles Banks and Their


    Closest Competitors Play in Today’s Economy

    McGraw-Hill/Irwin
    © 2008 The McGraw-Hill Companies, Inc., All Rights
    Bank Management and Financial Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
    Reserved.
    1-14

    Key Trends Affecting All Financial-Service


    Firms – Crisis, Reform, and Change
    • Service Proliferation (Increase suddenly)
    • Rising Competition
    • Government Deregulation and then Reregulation
    • Crisis, Reform, and Change in Banking and Financial
    Services
    • An Increasingly Interest-Sensitive Mix of Funds
    • Technological Change and Automation
    • Consolidation and Geographic Expansion
    • Globalization

    McGraw-Hill/Irwin
    © 2008 The McGraw-Hill Companies, Inc., All Rights
    Bank Management and Financial Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
    Reserved.
    1-15

    Quick Quiz
    • What is a bank? How does a bank differ from most other financial-
    service providers?
    • Which businesses are banking’s closest and toughest competitors?
    What services do they offer that compete directly with banks’
    services?
    • What is happening to banking’s share of the financial marketplace
    and why?

    • What Are The Key Trends Affecting All Financial-Service Firms?

    McGraw-Hill/Irwin
    © 2008 The McGraw-Hill Companies, Inc., All Rights
    Bank Management and Financial Copyright © 2013 The McGraw-Hill Companies, Inc. Permission required for reproduction or display.
    Reserved.
    • END

    McGraw-Hill/Irwin
    © 2008 The McGraw-Hill Companies, Inc., All Rights
    Bank Management and Financial
    Reserved.

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