The commercial banking market structure

An overview of the structure of the commercial banking industry

 

The structure of the US banking system is unique in comparison with those of other countries around the world. The banking structure is often characterized by size distribution or by type of banks in the industry. As of the end of 1990, there were 12,672 insured US commercial banks operating in the United States, while in other countries a far smaller number of banks dominate in their domestic markets.

For example, in the UK six nationwide retail banks, together with seven regional retail banks, operate more than 12,000 branches throughout the country, dominating the domestic retail banking market. Similarly only eleven domestically chartered banks in Canada are major players in the domestic market, with over 7,000 branches nationwide. In Japan, there are seventy-five commercial banks which dominate retail and corporate banking markets. Out of this total number, eleven banks are so-called "city" banks having nationwide branches and the remaining sixty-four are "regional" banks.

As we can see from Table 1, many US commercial banks are rather small. About 6,400 US banking organizations (almost two-thirds of the total) had an asset size of less than $50 million. These banks as a whole held about 5.9 percent of the total banking assets of $2,597 billion then. Meanwhile, there were only 262 banking organizations which had an asset size of over $1 billion and they together held about 75 percent of total assets in the banking industry. Even among these relatively large banks, the size variation was substantial, ranging from $1 billion to over $200 billion.

Another unique aspect of the US banking industry is the so-called dual banking system. By this we mean that there are two parallel regulatory structures in chartering, supervising, and examining banks in the United States. One side of the regulatory structure consists of the state regulatory agencies and their regulatory systems and the other side consists of three federal agencies, namely the Office of the Comptroller of the Currency (OCC), the Federal Reserve System, and the Federal Deposit Insurance Corporation (FDIC), and their respective regulatory systems. Therefore, in the United States there is a certain amount of built-in competition between the state and federal regulatory agencies. That is, in principle a bank can choose its own regulatory master. The Federal Reserve System is the central bank system in the United States, consisting of the policy-making Federal Reserve Board of Governors and its instrumentalities, Federal Reserve Banks. It is also called the Federal Reserve, or the System, or simply the Fed.

 

I. Key terms:

Beneficiary (US)	- бенефіціар - a person, who receives a benefit, esp. one who receives money, property etc. under a will (at sb’s death);
Instrumentality	- агентство - federal agency the commitments of which are guaranteed by USA Government, but are not their direct commitments;
Wire transfer	- електронний переказ - a system of electronic passage of funds.

 

II. Answer the following questions:

 

1. Make comparison between commercial banks of the USA and other countries.

2. Prove that many US commercial banks are rather small.

3. Explain why the structure of the US banking system is unique in comparison with those of other countries around the world.

4. What do we mean by so-called dual banking system?

5. Describe each of the two regulatory structures in the US banking system.

6. What bodies does the Federal Reserve System consist of?

 

III. Find in the text the following word combinations:

 

Управління контролера грошового обігу; Федеральна корпорація страхування депозитів; Рада керівників Федеральної Резервної Системи; Казначейство, Міністерство фінансів.

 

 

IV. Explain the following word combinations and use them in your own sentences:

 

insured commercial bank domestic retail banking market nationwide branches total banking assets built competition

policy making regional banks corporate banking markets regulatory system banking industry

 

 

V. Fill in the blanks. Rewrite the passage filling in the blanks from the list of words below.

 

manage affairs invested accounts protect chartered regulated savings

advice dual depositor checking loans full-service range entities

profit-making operate credit assets issued supervised funds checks

 

 

Financial institutions: their role in business

 

Financial institutions that serve business include banking institutions – commercial banks, thrifts, credit unions, and others – and non-banking institutions, such as insurance companies and commercial and consumer finance companies. Before 1863 all commercial banks in the United States were _____ by banking commissions of the states in which they operated. To eliminate the abuses of some of the state-chartered banks, the National Banking Act of 1863 created a new banking system of federally chartered banks, supervised by the Office of the Comptroller of Currency, a department of the US Treasury. Today the United States has a _____ banking system in which banks supervised by the federal government and by the state _____ side by side. Insurance companies and consumer finance companies are _____ by the state in which they operate.

 

Commercial Banks

 

About 14.000 commercial banks do business in the United States. A commercial bank is a _____ institution that holds the deposits of individuals and businesses in _____ and savings accounts and then use these _____ to make _____ to individuals, businesses, and the government. Commercial banks in the United States are chartered by either the state or the federal government. While bank charters _____ by states and the federal government do differ, the differences are not noticeable to the individual _____. Table 1 shows the top 15 commercial banks in the United States, based on their _____.

Table 1. Top 15 Commercial Banks in the United States

(Based on Total Assets)

 

Rank	Bank and Head Office	Assets ($ in millions)
	Citibank, New York	$ 164,413,000
	Bank of America, San Francisco	94,127,000
	Chase Manhattan, New York	83,028,946
	Morgan Guarantee of NY, New York	75,051,648
	Bankers Trust, New York	59,937,000
	Manufacturers Hanover, New York	58,783,000
	Security Pacific, Los Angeles	58,460,658
	Chemical Bank, New York	51,195,000
	Wells Fargo Bank, San Francisco	48,520,543
	Bank of New York, New York	44,709,711
	First National Bank of Chicago, Chicago	37,099,251
	NCNB Texas, Dallas	35,606,501
	First National Bank of Boston, Boston	29,341,244
	Continental Bank, Chicago	25,859,126
	Republic of New York, New York	22,339,051

 

Commercial banks are sometimes called _____ banks. Certainly most offer an extensive _____ of services. In addition to checking and _____ accounts and personal and business loans, commercial banks offer bank _____ cards, safe-deposit boxes, discount brokerage services, wire transfers of funds between banks, financial _____, overdraft protection (for checking _____), traveler’s _____, and trusts.

Trusts are legal _____ set up to hold and manage assets for a designated beneficiary. Funds in a trust are typically _____ in stocks, bonds, real estate, and other investments. Parents often use trusts to _____ their children in the event of their death, especially when the children are too young to _____ their own _____.

Young Americans Bank has an interesting approach to banking. It offers services to customers as young as 11 years old.

 

VI. Summarize the following passage in about 100 words:

Young Americans Bank

 

Young Americans Bank has clients who stand no taller than T. Boone Pickens’ belt buckle. The bank makes MasterCards available to customers as young as 12. To qualify for the $95-a-year plastic credit card, the applicant must have an account at the bank and, if under 18, an adult cosigner. When the bank opened, it amused locals. But the bank is proving itself. It opened an impressive 5,000 accounts in the first seven months of business, has $1.3 million in capital, and plans to break even this year, even though the typical new bank takes three years to make a profit.

Junior patrons can open a checking account with as little as $10 and take out loans. The bank has lent money to buy a horse, to cut a record, and to start and sustain young businesses. “We get some incredibly ambitious kids here,” says Leanne Cadman, Young Americans’ loan administrator. “They’re 15, 16 years old, and they’re ready to make a million dollars.” The bank accommodates even the most pint-sized entrepreneur. It features steps to the teller windows and multilevel loan desks.

The bank was started by Denver cable TV magnate Bill Daniels as a way to teach money management skills to kids. He spent two years convincing the Colorado banking board to issue a state charter and contributed $2 million of his own money toward the project. He also enlisted 20 founding sponsors, who agreed to deposit $50,000 to $100,000 each for at least a year without collecting interest.

Some skeptics ask if “buy now, pay later” is a lesson we want to teach our youth. But despite skeptics, young bank customers keep coming. Cadman sees six to eight loan applicants a week – some of whom have already launched successful business ventures. Fourteen-year-old Lee Nicholson was his snow removal business take off after borrowing $700 for a snowblower. With a $1,500 loan, University of Colorado junior Greg Phelps began marketing a software program for Shaklee distributors.

 

VII. Choose the right answer:

 

1. A “current/checking” account is …

a) one which is available for the time being;

b) one in which savings are held4

c) one which is used all the time for day-to-day transactions.

2. A “deposit/savings” account is …

a) one from which regular payments are made;

b) one in which savings are held;

c) one from which withdrawals can be made by cheque.

3. The “rate of interest” is …

a) a percentage of each unit of money paid for its use;

b) rate of profitability;

c) portion of an investment on which the interest is calculated.

4. An “overdraft” is …

a) an amount by which the balance in a current account exceeds the value of a cheque drawn from it;

b) an amount by which the value of a cheque exceeds the balance in the current account;

c) an excessive balance in a current account.

 

VIII. Do it in English making use of the active vocabulary:

 

Порівняння банківської структури

США та інших країни

 

Структура комерційного банківництва Сполучених Штатів значно відрізняється від структури інших промислово розвинутих країн. Сполучені Штати — єдина країна, яка не має національної банківської системи, в якій банки мають відділення по всій країні. На відміну від інших країн, Сполучені Штати мають старовинну модель регулювання бан­ківської сфери штатами і феде­рального регулювання, яке забез­печує керування банківською діяльністю між штатами, що становить національну банківську систе­му. Один із результатів такої орга­нізації банківництва полягає в тому, що в Сполучених Штатах існує на­багато більше банків, ніж в інших промислово розвинутих країнах. На відміну від Сполучених Штатів, які мають приблизно 12 000 комерційних банків, у кожній іншій промислово розвиненій країні не більше 1000 банків. Наприклад, в Японії є приблизно 150 комерційних банків, тобто фактично 1% від їхньої кіль­кості в США, незважаючи на те, що населення і економіка Японії становлять половину населення і обсягу виробництва США.

Інший наслідок обмеження від­ділень банків полягає в тому, що американські банки значно менші, ніж банки в інших країнах. Тільки один американський банк «Citicorp», входить у десятку найбільших бан­ків світу. Наступний найбільший за розмірами американський банк, «BankAmerica», навіть не потрапляє до списку перших двадцяти п'я­ти. Своєрідність банківської струк­тури Сполучених Штатів ще біль­ше вирізняється від інших структур у світі після поглиблення єв ропейської економічної інтеграції в 1992 р. Починаючи з 1 січня 1992 р.. всі банки, які мають ліцензію Європейського Економічного Співтовариства (ЄЕС), безперешкодно надаватимуть повний набір банківсь­ких послуг в будь-якій країні ЄЕС. Внаслідок цього повинна скластися всеєвропейська банківська система з щораз більшими європейськими банками.