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CH 01 Rose

The document provides an overview of banks and the financial services sector. It discusses what banks are, the types of competing financial institutions, and the key functions and services that banks provide to customers. It also examines trends that are affecting financial services firms.

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Muhammad Usman Yusuf
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24 views

CH 01 Rose

The document provides an overview of banks and the financial services sector. It discusses what banks are, the types of competing financial institutions, and the key functions and services that banks provide to customers. It also examines trends that are affecting financial services firms.

Uploaded by

Muhammad Usman Yusuf
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 18

Chapter 1

An overview of banks and the


financial-services sector

Slides based on Bank Management & Financial Services by


Peter Rose and Sylvia Hudgins, 7th ed., McGraw-Hill, Gup
book, and adapted by Dorla A. Evans, 2008. 1
Functions and forms of banking
• Key Topics in Chapter

– What is a bank?
– Competing financial-service institutions
– What do banks do?
– Key trends affecting all financial-services firms
– Career opportunities in financial services

2
What is a bank?
• Why is
– Bank of America called a bank
– J.P. Morgan called an investment bank
– Merrill-Lynch called a securities brokerage
firm
– Alabama Credit Union called a credit union
– and State Farm an insurance company?

3
What is a bank?
• History makes these organizations
different

– Historically, banks accepted demand


deposits and made business loans
– Hence, called commercial banks

4
What is a bank?

• Recent definition:

– qualifies to be regulated
by FDIC!

5
Bank competition: Market share

6
March 2005, out of $43 trillion * Based on 2003 data
Bank competition: Change in
market share

7
How do banks compare:
Deposits in $M in 2004

From Koch and MacDonald, Bank Management, 6e, 2006, p.6 8


Number of banks by asset size

9
Total assets in $B by size of bank

Money-centered banks versus community banks 10


Types of banks

• Global – money-centered
• Medium- and large-sized full-service
banks
• Small- and medium-size banks
• Wholesale banks
• Limited-purpose banks
• Internet

11
What do banks do for their customers?

• Payment system

• Financial intermediation

• Other financial services

12
What do banks do for their customers?

• Payments

– Coin and currency; currency exchange

– Retail payments system

– Large-dollar payments system for business and


government

13
What do banks do for their customers?

• Financial intermediation

$50 M $5,000

8% 5%

14
What do banks do for their customers?

• Other financial services


– Safety deposit boxes
– Fee services: lockboxes & letters of credit
– Insurance-related activities
– Securities-related services: underwriting,
brokerage
– Leasing
– Trust services

15
Why do banks perform those services?
Goal

Maximize Size of cash flow


shareholder Timing of cash flow
wealth
Risk of cash flow

Credit Interest Operational Liquidity Price


rate
Constraints
Market Social Legal and
competition regulatory 16
Trends affecting financial services firms

• Service proliferation
• Rising competition
• Deregulation
• Interest sensitivity of funds
• Technological advances
• Consolidation and geographic expansion
• Convergence
• Globalization
• Securitization

17
Questions?

18

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