An overview of the structure of the commercial banking industry

THE COMMERCIAL BANKING MARKET STRUCTURE

Text A

Market structure

The USA commercial banking

Emergency Credit

Section 13 of the Federal Reserve Act empowers the Federal Re­serve to lend to individuals, partnerships, and corporations un­der "unusual and exigent" circumstances. When not secured by U.S. government securities, any loans to nondepositories under this authority must be approved by five members of the Board of Governors. Lending under these provisions has been extremely rare, and such loans have not been extended since the 1930s.

Unit VI

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

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