chap 1 overview Flashcards
one-stop
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demand deposits services
A checking account that permitted depositors to write drafts in payment for goods and services that the bank or other service providers had to honour immediately
=transaction account= checking account= ATM
1-1. What is a bank? How does a bank differ from most other financial-service providers?
A bank should be defined by what it does; in this case, banks are generally those financial institutions offering the widest range of financial services. Other financial service providers offer some of the financial services offered by a bank, but not all of them within one institution.
1-2. Under U.S. law what must a corporation do to qualify and be regulated as a commercial bank?
Under U.S. law, commercial banks must offer two essential services to qualify as banks for purposes of regulation and taxation, demand (checkable) deposits and commercial loans. More recently, Congress defined a bank as any institution that could qualify for deposit insurance administered by the FDIC.
1.3. Why are some banks reaching out to become one-stop financial - service conglomerates? Is this a good idea, in your opinion?
There are two reasons that banks are increasingly becoming one-stop financial service conglomerates. The first reason is the increased competition from other types of financial institutions and the erosion of banks’ traditional service areas. The second reason is the Financial Services Modernization Act which has allowed banks to expand their role to be full service providers.
1-4. Which businesses are banking’s closest and toughest competitors? What services do they offer that compete directly with banks ?
Among a bank’s closest competitors are savings associations, credit unions, money market funds, mutual funds, hedge funds, security brokers and dealers, investment banks, finance companies, financial holding companies, and life and property-casualty insurance companies. All of these financial service providers are converging and embracing each other’s innovations. The Financial Services Modernization Act has allowed many of these financial service providers to offer the public one-stop shopping for financial services.
1-5. What is happening to banking’sshare of the financial marketplace and why? What kind of banking and financial system do you foresee for the future if present trends continue?
The Financial Services Modernization Act of 1999 allowed many of the banks’ closest competitors to offer a wide array of financial services thereby taking away market share from banks. Banks and their closest competitors are converging into one-stop shopping for financial services and this trend should continue in the future
1-6 What different kinds of services do banks offer the public today? What services do their closest competitors offer?
Banks offer the widest range of services of any financial institution. They offer thrift deposits to encourage saving and checkable (demand) deposits to provide a means of payment for purchases of goods and services. They also provide credit through direct loans, by discounting the notes that business customers hold, and by issuing credit guarantees. Additionally, they make loans to consumers for purchases of durable goods, such as automobiles, and for home improvements, etc. Banks also manage the property of customers under trust agreements and manage the cash positions of their business customers. They purchase and lease equipment to customers as an alternative to direct loans. Many banks also assist their customers with buying and selling securities through discount brokerage subsidiaries, the acquisition and sale of foreign currencies, the supplying of venture capital to start new businesses, and the purchase of annuities to supply future funding at retirement or for other long-term projects such as supporting a college education. All of these services are also offered by their closest competitors. Banks and their closest competitors are converging and becoming the financial department stores of the modern era.
1-7 . What is a financial department store? A universal bank?Why do you think these institutions have become so important in the modern financial system?
1-7 . What is a financial department store? A universal bank?Why do you think these institutions have become so important in the modern financial system?
1-8. Why do banks and other financial intermediaries exist in modern society, according to the theory of finance?
There are multiple approaches to answering this question. The traditional view of banks as financial intermediaries sees them as simultaneously fulfilling the financial-service needs of savers (surplus-spending units) and borrowers (deficit-spending units), providing both a supply of credit and a supply of liquid assets. A newer view sees banks as delegated monitors who assess and evaluate borrowers on behalf of their depositors and earn fees for supplying monitoring services. Banks also have been viewed in recent theory as suppliers of liquidity and transactions services that reduce costs for their customers and, through diversification, reduce risk. Banks are also critical in the payment system for goods and services and have played an increasingly important role as a guarantor and a risk management role for customers.
1-9. How have banking and the financial services market changed in recent years? What powerful forces are shaping financial markets and institutions today? Which of these forces do you think will continue into the future?
Banking is becoming a more volatile industry due, in part, to deregulation which has opened up individual banks to the full force of the financial marketplace. At the same time the number and variety of banking services has increased greatly due to the pressure of intensifying competitionfrom nonbank financial-service providers and changing public demand for more conveniently and reliably provided services. Adding to the intensity of competition, foreign banks have enjoyed success in their efforts to enter countries overseas and attract away profitable domestic business and household accounts.
1-10 Can you explain why many of the forces you named in the answer to the previous question have led to significant problems for the management of banks and other financial firms and their stockholders?
The net result of recent changes in banking and the financial services market has been to put greater pressure upon their earnings, resulting in more volatile returns to stockholders and an increased bank failure rates. Some experts see banks role and market share shrinking due to restrictive government regulations and intensifying competition. Institutions have also become more innovative in their service offerings and in finding new sources of funding, such as off- balance-sheet transactions. The increased risk faced by institutions today, therefore, has forced managers to more aggressively utilize a wide array of tools and techniques to improve and stabilize their earnings streams and manage the various risks they face.
1-11 What do you think the financial - services industry will look like 20 years from now? What are the implications of your projections for its management today?
There appears to be a trend toward continuing consolidation and convergence. There are likely to be fewer financial service providers in the future and many of these will be very large and provide a broad range of financial services under one roof. In addition, global expansion will continue and will be critical to the survival of many financial service providers. Management of financial service providers will have to be more technologically astute and be able to make a more diverse set of decisions including decisions about mergers, acquisitions and global expansion as well as new services to add to the firm.
banking’s share of the financial marketplace
thị phần của ngan hang trong mieng banh thị trường tài chính
convergence
two or more things, ideas, etc. become similar or come together:
