Courier: Bank and Financial Firm Essay

Review for Test 1
Chapter 1
- What is a bank? Understand that a bank is an institution that takes deposits and makes loans - Main role of a bank – financial intermediation – movement of funds from those who have excess funds to those who need funds
- Know the recent trends in the banking industry: deregulation(撤销管制规定), increased competition,
Convergence(收敛，汇聚，集合), service proliferation服务增值, consolidation巩固，合并，团结, and globalization
- Be familiar with different services provided by the banks
Sample questions:
- What is the main role of banking system?
The primary purpose of the banking system is to encourage individuals and institutions to save and transfer those savings to those planning to invest in new projects. This causes the economy to grow, increases job creation and increases living standards.
- What are the recent trends in banking industry?
The recent trends in the banking industry include:
1. Service Proliferation: Leading financial firms have been rapidly expanding the menu of services they offer to their customers.
2. Rising Competition: The level of competition in the financial services field has grown as financial institutions have proliferated their service offerings.
3. Government Deregulation- loosening of government control of the industry
4. An increasingly interest-sensitive mix of funds: Competition in their offered returns and more sensitive to changing public preferences with regard to how savings are allocated now that customers are better educated and more interest sensitive.
5. Technology change and automation: due to higher operating costs in recent years, banks have turned to automation and the installation of sophisticated electronic systems to replace older, labor-based production (ex. ATM & POS)
6. Consolidation and geographic expansion: reaching into new and more distant markets and increasing the number of service units sold in those expanding markets.
7. Convergence: the movement of businesses across industry lines so that a firm formerly offering one/two product line ventures into other product lines to broaden its sales base (promotes M&A)
8. Globalization: the geographic expansion and consolidation of financial services units have reached well beyond a single nation to encompass 包围the whole planet.
- What is the definition of a bank from the US government perspective?
Government bank definition: any business offering deposits subject to withdrawal on demand and making loans of a commercial or business nature
Chapter 2
- Why are banks regulated? Answered below
- Understand the main areas of bank regulation: reserve requirements, capital requirements, deposit insurance, requirement to tell the truth
- Two main deregulation initiatives: - Allowing interstate branching – Riegle_Neal Act
(1) adequately capitalized and managed holding companies can acquire banks anywhere in the US (2) interstate holding companies can consolidate their affiliated banks across state lines however branches established to take deposits from the public must also offer loans to support the local communities (3) No single comp can control more than 10% of nationwide deposits or more than 30% of deposits in a singe state.
- Allowing combination of commercial and investment banking activities – GrammLeach-Bliley Act
Over turned the glass-steagall act. Permitted well-managed and well-capitalized companies with satisfactory CRA ratings to affiliate with insurance and security firms under common owernship. Purpose was to allow qualified US financial service companies the ability to diversify their service offerings and thereby reduce their overall business risk exposure.
- Be familiar with some regulatory failures that contributed to the current crisis: uncontrolled securitization, predatory lending, no regulation of derivatives market too much securitizing was allowed, predatory ending was uncontrolled, derivatives market was not regulated properly especially

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