NOTE: Free essay sample provided on this page should be used for references or sample purposes only. The sample essay is available to anyone, so any direct quoting without mentioning the source will be considered plagiarism by schools, colleges and universities that use plagiarism detection software. To get a completely brand-new, plagiarism-free essay, please use our essay writing service.
One click instant price quote
... mercial enterprises was virtually the only type of loan commercial bankers would undertake. Today, bankers lend to businesses, consumers, and governments (both domestic and foreign), with maturities ranging from one day to several decades. In the late 1980 s about 90 percent of the banking system's loans financed commercial and industrial enterprises, real-estate transactions, and consumer loans. The remaining loans were allocated to other financial intermediaries, to security dealers and brokers, and to foreign governments and official institutions. As a rule, the longer the maturity or the less creditworthy the borrower, the greater is the interest rate.
The second largest category of bank assets is investments, held by banks for both liquidity and income purposes. These investments include U. S. government and government guaranteed securities, the bonds of states and municipalities, and private securities. Banks also hold cash assets, mostly for liquidity purposes, but also because the banking authorities mandate that a certain fraction of deposits be held in cash-asset form. Of the banking system's liabilities, about three-fourths are in the form of deposits, primarily from individuals and companies, but also from domestic and foreign government agencies.
Since 1960, deposit composition has undergone a major shift, from a heavy concentration in demand deposits; by 1987, time and savings deposits exceeded demand deposits by more than a 3: 1 ratio. Rising interest rates combined with changing banking practices go far to explain this reversal. Interest rates on assets comparable to time deposits in 1960 averaged 3. 5 percent; in 1987 they averaged 7 percent. Bankers supplemented asset-management practices with management of liabilities; today, bankers are willing to acquire liabilities if the funds can be profitably lent out.
Thus, beginning in the 1960 s, new financial instruments such as large-denomination certificates of deposit were made available to depositors. As banks actively sought deposits in the United States and in Europe, the Eurodollar market was created, a market that was estimated to approach $ 1 trillion in the early 1980 s. Non deposit liabilities such as borrowings on the federal funds market, involving deposits with the Federal Reserve, were also pursued. The largest banks account for the bulk of banking activity.
In the late 1980 s fewer than 5 percent of the commercial banks in the United States were responsible for more than 40 percent of all deposits, and 85 percent of the banks held less than one-fifth of total deposits. Competition for corporate and individual deposits is keen among the banking giants, whose growth is limited by the Bank Merger Act (1960) as well as by antitrust laws. The U. S.
banking system differs radically in this respect from such countries as Canada, Great Britain, and Germany, where a handful of organizations dominate banking. In the past geographical constraints on expansion prevented banks from moving beyond their state or even beyond their county. Thus many small bankers were protected from competition. More recently most states as well as the federal government have loosened the regulation of banks, especially in the area of mergers and acquisitions. Many banks have grown by taking over other banks both within and outside their home states. In 1980 there were over 14, 000 commercial banks in the United States; in the mid- 1990 s there were less than 11, 000.
Computer links among banks and the use of automated teller machines have broken down the geographical barriers to the growth of nationwide banking. Overall government controls on banking were significantly loosened by the Depository Institutions Deregulation and Monetary Control Act (1980). Among its provisions are abolition of state usury limits on certain types of loans, gradual elimination of interest-rate ceilings on savings and time deposits, and extension of permission of all depository institutions to offer interest-paying checking accounts. The Garn-St. Germain Financial Institutions Act (1982), among its many other important provisions, permits interstate acquisition of failing banks. While government regulation of commercial banking since the mid- 1930 s has led to a low failure rate and preserved a substantial amount of competition in some markets, local monopolies have also been implicitly encouraged.
Moreover, stringent regulations have caused some bankers to devote considerable resources to circumventing government controls. The present rethinking of the role of government regulation in the economy in general may lead toward even further liberalization of controls over the banking system. Savings and loan associations (SLAs) and savings banks are similar but separate financial institutions. Both were patterned after cooperative movements in Scotland and England and, although they share the same roots, their different but related goals caused them to develop in different ways. Historically, commercial banks ignored the non business sectors of the economy.
This led to the evolution of a variety of thrift institutions designed specifically to serve the neglected consumer market. SLAs, which first appeared in the 1830 s, were originally founded as "building societies" to provide their members with funds to buy or build a home. Today SLAs continue to concentrate on funding homes. SLAs accept deposits from the public and use these funds to make various types of investments, mostly in residential real estate mortgages, and particularly in home mortgage loans. SLAs are the largest holders of mortgage debt in the U. S.
The bulk of their liabilities are in the form of savings deposits. In the late 1980 s the failures of many SLAs caused the government to overhaul the industry. SLAs are regulated by the Office of Thrift Supervision, an agency of the Treasury Department. Deposits in member institutions up to $ 100, 000 are insured by the FDIC through its Savings Association Insurance Fund. Savings banks were established to encourage thrift among working people and to provide a safe place for them to save.
They pooled depositors's aging for investment and generally were restricted by charter to investing in government bonds. Their holdings in mortgage lending have grown from their early years, and by 1987, some 55 percent of their funds were invested in mortgage loans. A large part of their portfolios is held in stocks and bonds. Mutual savings banks (MSBs) are found primarily on the eastern seaboard. Deposits in most MSBs are insured by the FDIC, including some MSBs that have converted to federal charters. The 1982 Garn-St.
Germain Depository Institutions Act blurred many of the distinctions between SLAs and MSBs, permitting savings banks to convert to federal charters, and creating a new type of Bibliography:
Free research essays on topics related to: commercial banks, banking system, financial institutions, domestic and foreign, depository institutions
Research essay sample on Domestic And Foreign Depository Institutions
