金融市場與金融機構英文課件-(19)

1、Chapter PreviewIn the U.S., about 6,000 commercial banks serving the businesses and consumers needs. This puts the U.S. in a class by itself. In most other developed nations, only a handful of banks dominate the landscape.But is this better?Chapter PreviewIndeed there are many questions we can ask.

2、Why did the U.S. banking system develop this way? Does this mean there is more competition? We try to answer these questions in this chapter.Chapter PreviewWe begin by examining the historical development of the banking system, both in the U.S. and abroad. We then examine the role of financial innov

3、ation and its impact on competition. Topics include:Historical Development of the Banking SystemFinancial Innovation and the Growth of the Shadow Banking SystemChapter Preview (cont.)Structure of the U.S. Commercial Banking IndustryBank Consolidation and Nationwide BankingSeparation of Banking and O

4、ther Financial Service IndustriesThrift Industry: Regulation and StructureInternational BankingHistorical Development of the Banking IndustryThe modern commercial banking industry began when the Bank of North America was chartered in Philadelphia in 1782.The next slide provides a timeline of importa

5、nt dates in the history of U.S. banking prior to WWII.Historical Development of the Banking IndustryHistorical Development of the Banking IndustryThere are also some major events post-1933In 1999, Glass-Steagall was repealed. Commercial banks, which previously had to sell off investment banking arms

6、, now engaged again in securities activities.Historical Development of the Banking IndustryThe history had one other significant outcome: Multiple Regulatory AgenciesFederal ReserveFDICOffice of the Comptroller of the CurrencyState Banking AuthoritiesHistorical Development of the Banking IndustryThe

7、 U.S. Treasury has proposed legislation to centralize the regulation of depository institutions under one independent agency, but it hasnt survived the scrutiny of Congress.Financial Innovation and the Growth of the Shadow Banking SystemAlthough banking institutions are still the most important fina

8、ncial institutions in the U.S. economy, in recent years the traditional banking business of making loans that are funded by deposits has been in decline. Some of this business has been replaced by the shadow banking system, in which bank lending has been replaced by lending via the securities market

9、.Financial InnovationInnovation is result of search for profits. A change in the financial environment will stimulate a search for new products and ideas that are likely to increase the bottom line.There are generally three types of changes we can examine:Response to Changes in Demand ConditionsResp

10、onse to Changes in Supply ConditionsAvoidance of Existing RegulationFinancial InnovationResponse to Changes in Demand ConditionsMajor change is huge increase in interest-rate risk starting in 1960sAdjustable-Rate Mortgages are an example of the reply to interest-rate volatilityBanks also started usi

11、ng derivates to hedge risk, and intermediaries (like the CBOT) started developing extensive interest rate products.Sample of current rates and indexeshttp:/charts.htmFinancial InnovationResponse to Changes in Supply ConditionsMajor change is improvement in information technology havelowered the cost

12、 of processing financial transactions, making it profitable for financial institutions to create new financial products and servicesmade it easier for investors to acquire information, thereby making it easier for firms to issue securitiesFinancial Innovation: Bank Credit and Debit CardsMany store c

13、redit cards existed long before WWII.Improved technology in the late 1960s reduced transaction costs making nationwide credit card programs profitable.The success of credit cards led to the development of debit cards for direct access to checkable funds.Financial Innovation: Electronic BankingAutoma

14、tic Teller Machines (ATMs) were the first innovation on this front. Today, over 250,000 ATMs service the U.S. alone.Automated Banking Machines combine ATMs, the internet, and telephone technology to provide “complete” service.Virtual banks now exist where access is only possible via the internet. Th

15、e next slide highlights this.E-Finance: Will “Clicks” dominate “Bricks” in Banking?Will virtual banks on the internet become the primary form for bank business, eliminating the need for physical bank branches? Heres some evidence:Internet-only banks have experienced low revenue growthDepositors appe

16、ar reluctant to “trust” the security of their funds in I-banksE-Finance: Will “Clicks” dominate “Bricks” in Banking?I-bank customers seem concerned that their transactions are truly secure and privateEmpirical evidence shows that long-term savings products are purchased more often face-to-factTechno

17、logy glitches are still presentFinancial Innovation: Electronic PaymentsThe development of computer systems and the internet has made electronic payments of bills a cost-effective method over paper checks or money.The U.S. is still far behind some European countries in the use of this technology.E-F

18、inance: Why are Scandanavians so far ahead of Americans with E-moneyThe U.S. writes close to 100 billion checks, and most noncash transactions involve paper. In Europe, however, two-thirds of noncash transactions are electronic. Why the difference?Europeans have been using giro payments for decades

19、(banks / post office transfers funds for bills)Scandinavians are much bigger users of mobile technology and the Internet. Why?Americas continued use of paper is costly. Can that ever be changed?Financial Innovation: E-MoneyElectronic money, or stored cash, only exists in electronic form. It is acces

20、sed via a stored-value card or a smart card.E-cash refers to an account on the internet used to make purchases.E-Finance: Are We Headedtoward a Cashless Society?Predictions of a cashless society go back decades. Business Week predicted e-payments would “revolutionize money itself (but reverse itself

21、 later). But several things work against this:Equipment to accept e-money not in all locationsSecurity and privacy concernsFinancial Innovation:Junk BondsPrior to 1980, debt was never issued that had a junk rating. The only junk debt was bonds that had fallen in credit rating.Michael Milken of Drexe

22、l Burnham assisted firms in issuing original-issue junk debt, and almost single-handedly created the market.Financial Innovation: Commercial Paper MarketCommercial paper refers to unsecured debt issued by corporations with a short original maturity.Currently, over $2.2 billion is outstanding in the

23、market (end of 2006).The development of money market mutual funds assisted in the growth in this area.Financial Innovation: SecuritizationSecuritization refers to the transformation of illiquid assets into marketable capital market instruments.Today, almost any type of private debt can be securitize

24、d. This includes home mortgages, credit card debt, student loans, car loans, etc.Financial Innovation: Avoidance of Existing RegulationsRegulations Behind Financial InnovationReserve requirements Tax on deposits = I rDDeposit-rate ceilings (Reg Q)As i , loophole mine to escape reserve requirement ta

25、x and deposit-rate ceilingsFinancial Innovation: Avoidance of Existing RegulationsMoney Market Mutual Funds (MMMFs): allow investors similar access to their funds as a bank savings accounts, but offered higher rates, especially in the late 1970s.Currently, MMMFs have assets around $10 trillion. In a

26、n odd irony, risks taken by MMMFs almost brought down the industry in 2008. We will see this in a mini-case after the next slide.Financial Innovation: Avoidance of Existing RegulationsSweep Accounts: Funds are “swept” out of checking accounts nightly and invested at overnight rates. Since they are n

27、o longer checkable deposits, reserve requirement taxes are avoided.MINI-CASE: Bruce Bent and the MMMF Panic of 2008Bruce Bent, an originator of MMMFs, told his shareholders of the Reserve Primary Fund in July 2008 that the fund was managed on a basis of “ discipline focused on protecting your princi

28、pal.”When Lehman Brothers went into bankruptcy in 2008, Bruces fund, with assets over $60 billion, was holding $785 million of Lehmans debtMINI-CASE: Bruce Bent and the MMMF Panic of 2008The valuation loss meant that Bruces investors took a loss$1 invested was no longer worth $1. The fund loss 90% o

29、f its assets almost overnight.This “panic” lead the Fed to step in, insuring MMMF assets.The MMMF industry will certainly face stiffer regulation follow this run.Treasury STRIPSTreasury STRIPS were developed in the early 1980s to help investors avoid reinvestment risk associated with coupon bonds. B

30、ecause of the change in the risk structure, investment banks were able to profit from the separation of interest into “bonds”. How?Treasury STRIPSTake a simple 10-year, 10% coupon bond with a face value of $1,000,000, and is selling at par. The first $50,000 interest payment in six months is worth $

31、47,673. But because investors found it less risky, they are willing to accept a yield lower than 10%. The difference is “profit” for the investment bank. This is seen on the next slide:Treasury STRIPSFinancial Innovation and the Decline in Traditional Banking The traditional role of transforming sho

32、rt-term deposits into long-term loans has been greatly affected by financial innovation. As the next slide shows, the importance of commercial banks as a source of funds to nonfinancial borrowers has shrunk dramatically. Financial Innovation and the Decline in Traditional Banking Financial Innovatio

33、n and the Decline in Traditional Banking Decline in Cost Advantages in Acquiring Funds (Liabilities)p i , then disintermediation becauseDeposit rate ceilings and regulation QMoney market mutual fundsCheckable deposits fell from 60% of bank liabilities to only 5% today.Financial Innovation and the De

34、cline in Traditional BankingDecline in Income Advantages on Uses of Funds (Assets)Easier to use securities markets to raise funds: commercial paper, junk bonds, securitizationFinance companies more important because easier for them to raise funds Banks ResponsesLoss of cost advantages in raising fun

35、ds and income advantages in making loans causes reduction in profitability in traditional bankingExpand lending into riskier areas (e.g., real estate)Expand into off-balance sheet activitiesCreates problems for U.S. regulatory systemSimilar problems for banking industry in other countriesDecline in

36、Traditional Banking in Other Industrialized CountriesForces similar to those in the U.S. have led to a similar decline in other industrialized countries.For example, Australian banks have lost business to international securities marketsIn many countries, as securities markets develop, banks also fa

37、ce competition from the new products offeredStructure of the U.S. Commercial Banking IndustryAround 7,500 commercial banks currently exist in the U.S.The tables on the next two slides shows various statistics for these banks as well as the ten largest U.S. banks.Structure of the Commercial Banking I

38、ndustryFDIC statistics on bankinghttp:/bank/statistical/index.htmlTen Largest U.S. Banks Worlds 100 largest banks http:/public/resources/documents/wb00-100-fpublic-2000-09-25.htmRestrictions on BranchingBranching Restrictions (McFadden Act of 1927): Very Anti-competitiveResponse to Branching Restric

39、tionsBank Holding CompaniesAllowed purchases of banks outside stateBHCs allowed wider scope of activities by FedBHCs dominant form of corporate structure for banksAutomated Teller Machines Not considered to be branch of bank, so networks allowedBank Consolidation and Nationwide BankingAs the next sl

40、ide shows, the number of commercial banks in the U.S. was very stable from 1934 through the mid-1980s. After that, the number of commercial banks began to fall dramatically.Bank Consolidation and Number of BanksQuarterly banking profile http:/qbp/qbpSelect.asp?menuItem=QBPBank Consolidation and Nati

41、onwide BankingBank Consolidation: Why? Loophole mining reduced effectiveness of branching restrictionsDevelopment of super-regional banksEconomies of scaleIncreased with the web and computer technologyScope economies also present in using data for pricing, new products, etc.Has lead to the birth of

42、large, complex banking organizations (LCBOs)E-Finance: Information Technology and Bank ConsolidationInformation technology is particularly relevant for the credit card industry. Today, over 60% of the credit card debt is help by the five biggest banks (only 40% in 1995).Custody for securities has ri

43、sen, from 40% as a percent of assets in 1990 to 90% today.Smaller banks just contract with larger banks, further leading to consolidation.Bank Consolidation and Nationwide BankingRiegle-Neal Act of 1994Allows full interstate branchingPromotes further consolidationFuture of Industry StructureWill bec

44、ome more like other countries, but not quite:Several thousand, not several hundredOnly half of small banks will remain, and large banks are expected to double in numberBank Consolidation and Nationwide BankingAre Bank Consolidation and Nationwide Banking a Good Thing?ConsFear of decline of small ban

45、ks and small business lendingRush to consolidation may increase risk takingProsCommunity banks will surviveIncrease competition and efficiencyIncreased diversification of bank loan portfolios: lessens likelihood of failuresSeparation of Banking and Other Financial Service Industries Glass-Steagall a

46、llowed commercial banks to sell on-the-run government securities, but prohibited underwriting and brokerage services. It also prohibited real estate and insurance business. But it did protect commercial banks by not allowing other financial intermediaries to offer commercial banking activities.Separ

47、ation of Banking and Other Financial Service IndustriesErosion of Glass-SteagallFed, OCC, FDIC are allowing banks to engage in underwriting activities, under the Section 20 loophole in the actGramm-Leach-Bliley Act of 1999Legislation to eliminate Glass-SteagallStates retain insurance regulation, whi

48、le SEC oversees securities activitiesOCC regulates subsidiaries that underwrite securitiesFed still oversees bank holding companiesSeparation of Banking and Other Financial Service Industries Implications for Financial ConsolidationG-L-B will speed-up consolidationExpect mergers between banks and ot

49、her financial service providers to become more common, and mega-mergers are likely on the wayU.S. banks likely to become larger and more complex organizationsSeparation of Banking and Other Financial Service Industries Separation in Other CountriesUniversal banking: GermanyNo separation of banking a

50、nd underwriting, insurance, real estate, etc.British-style universal bankingUnderwriting ok, but more legal separation of subs, no equity stakes in firms, insurance uncommonJapanAllowed to hold equity in firms, but BHCs are illegal. Leaning toward the British systemThrift Industry: Regulation and St

51、ructureThe regulation and structure of the thrift industry closely parallels the regulation and structure of the commercial banking industry. We will look at each type of institution briefly:savings and loan associations (S&Ls)mutual savings bankscredit unionsThrift Industry: S&LsCan be chartered ei

52、ther by the federal government or by the statesOffice of the Comptroller of the Currency regulates federally insured S&Ls by setting minimum capital requirements, requiring periodic reports, and examinationsAre members of the Federal Home Loan Bank System, which makes loans to the members of the sys

53、temThrift Industry: S&LsSavings and loans experienced serious difficulties in the 1980s, engaging in many of the same activities as commercial banksMany experts view having a separate charter and regulatory apparatus no longer makes sense.Thrift Industry: Mutual Saving BanksSimilar to S&Ls but are j

54、ointly owned by the depositors Subject to many of the FDICs regulations for state-chartered banksDeposits not insured by the FDIC have their deposits insured by state insurance fundsMost have assets in excess of $25 million since regulations are fairly liberal.Thrift Industry: Credit UnionsSimilar t

55、o S&Ls, but organized around a particular group of individuals with a common bondNational Credit Union Administration (NCUA) issues federal charters and regulates federally chartered credit unionsAssets are consumer loans with fairly short maturities, thus avoiding the financial difficulties of the

56、S&Ls and mutual savings banksThrift Industry: Credit UnionsUsually small, with assets less than $10mRegulatory changes allow individual credit unions to cater to a more diverse group of people by interpreting the common bond requirement less strictlyBranching across state lines and into other countr

57、ies is permitted for federally chartered credit unions (Eg., Navy Federal CU).International BankingThere are currently 100 American bank branches abroad, with over $1.5 trillion in assets. In 1960, there were only 8 branches with less than $4 billion in assets. Why the rapid growth?Rapid growth of i

58、nternational tradeBanks abroad can pursue activities not allowed in home countryTap into Eurodollar marketInternational BankingThe Eurodollar market represents U.S. dollars deposited in banks outside the U.S. Many companies want these dollars:The dollar is widely used in international tradeDollars h

59、eld outside the U.S. are not subject to U.S. regulationsLondon is the center for EurodollarsTo capture the profits from Eurodollar transactions, U.S. banks opened abroadInternational BankingU.S. Banking Overseas. Most foreign branches are in Latin America, the Far East, the Caribbean, and London, fo

60、r either trade reasons or regulatory avoidance.Another structure is the Edge Act Corporation, a sub engaged in international banking.International BankingU.S. banks can also own controlling interests in foreign banks and finance companies, governed by Regulation K.International Banking Facilities we