1. An Overview of the Changing Financial-Services Sector
Chapter One
An Overview of the Changing Financial-Services Sector

2. Powerful Forces Changing the Industry What Is a Bank?
Key Topics
Powerful Forces Changing the Industry
What Is a Bank?
The Financial System and Competing Financial-Service Institutions
Old and New Services Offered to the Public
Key Trends Affecting All Financial- Service Firms

3. Introduction
Banks are the main source of credit (loans) for millions of households and for many units of government
World-wide banks grant more loans to consumers (households) than any other financial-service companies
The assets held by U.S. banks represent about one- fifth of the total assets
In other nations banks hold half or more of all assets in the financial system

4. What Is a Bank? A bank can be defined in terms of:
The economic functions it performs
The services it offers its customers
The legal basis for why it exists.
Historically, banks have been recognized for the many different financial services they offer, such as:
Investment Banking
Insurance
Financial planning
Advice for merging companies
Risk-management services to businesses and consumers ……And many other services

5. EXHIBIT 1-1 The Many Different Kinds of Financial-Service Firms Calling Themselves Banks

6. What Is a Bank? (continued)
Money-Centered Banks vs. Community Banks
Money-center banks
Cover whole regions, nations, and continents
Offer the widest possible menu of financial services
Acquire smaller businesses
Face tough global competition
Community banks
Much smaller
Service local communities and towns
Offer less financial services

7. What Is a Bank? (continued)
The Legal Basis for Banking
A bank is any business offering deposits subject to withdrawal on demand and making loans of a commercial or business nature
Congress then defined a bank as any institution that could qualify for deposit insurance administered by the Federal Deposit Insurance Corporation (FDIC)
Under federal law in the U.S., a bank is not defined so much by its many products, but by the government agency insuring its deposits

8. The Financial System and Competing Financial-Service Institutions
Roles of the Financial System
The primary purpose of the financial system is to encourage saving and to transfer those savings from savers and lenders to borrowers and spenders.
This process of encouraging savings and transforming savings into investment spending causes the economy to grow, new jobs to be created, and living standards to rise
The financial system also provides a variety of supporting services:
Payment services
Risk protection services
Liquidity services

9. The Financial System and Competing Financial-Service Institutions (continued)
The Competitive Challenge for Banks
Lately, the financial market share that banking comprised has fallen
Some fear that this downward trend in market share may mean that traditional banking is dying
Other experts say that banking is not dying but changing by offering new services and changing its form
The banking industry’s largest customers have found ways around banks to obtain the funds that they need
Borrowing in the open market
Perhaps banking is being “regulated to death”

10. The Financial System and Competing Financial-Service Institutions (continued)
Leading Competitors with Banks
Savings Associations
Credit Unions
Fringe Banks
Money Market Funds
Mutual Funds (Investment Companies)
Hedge Funds
Security Brokers and Dealers
Investment Banks
Finance Companies
Financial Holding Companies
Life and Property/Casualty Insurance Companies

11. The Financial System and Competing Financial-Service Institutions (continued)
Leading Competitors with Banks
Financial-service providers are converging or coming together in terms of the services they offer
The U.S. Financial Services Modernization (Gramm-Leach-Bliley) Act of 1999 has allowed many different types of financial firms to offer the public one-stop shopping for financial services
The challenge today is seeing the difference banks & other financial-service providers.

12. EXHIBIT 1–2 Comparative Size by Industry of Commercial Banks and Their Principal Financial-Service Competitors

13. Services Banks and Many of Their Closest Competitors Offer the Public
Services Banks Have Offered for Centuries
Currency Exchange
Discounting Commercial Notes and Making Business Loans
Offering Savings Deposits
Safekeeping of Valuables
Supporting Government Activities with Credit
Offering Checking Accounts (Demand Deposits)
Offering Trust Services – managing the accounts of wealthy individuals.

14. Services Banks and Many of Their Closest Competitors Offer the Public (continued)
Services Banks and Many of Their Financial-Service Competitors Began Offering in the Past Century
Granting Consumer Loans Financial Advising
Managing Cash Offering Equipment Leasing
Making Venture Capital Loans – new business loans
Selling Insurance Policies
Selling and Managing Retirement Plans
Dealing in Securities: Offering Security Brokerage and Investment Banking Services
Offering Mutual Funds, Annuities, and Other Investment Products
Offering Merchant Banking Service
Offering Risk Management and Hedging Services

15. TABLE 1–1 The Many Different Roles Banks and Their Closest Competitors Play in Today’s Economy

16. TABLE 1–2 Some of the Leading Financial-Service Firms around the Globe

17. INDUSTRY OVERVIEW (cont)
Below is a list of the largest commercial/investment banks in the world and where they are located.
Bank Headquarters
Bank of America Merrill Lynch New York City, US
Barclays London, UK
Citigroup New York City
Credit Suisse Zurich, Switzerland
Deutsche Bank Franfurt, Germany
Goldman Sachs New York City
J.P. Morgan New York City
Morgan Stanley New York City
UBS Zurich, Switzerland

18. Key Trends Affecting All Financial-Service Firms – Crisis, Reform, and Change
More and more services and Rising Competition
Government Deregulation and then Reregulation
Crisis, Reform, and Change in Banking and Financial Services
An Interest-Sensitive Mix of Funds
Technological Change & Automation
Consolidation (getting bigger through mergers and acquisitions) and Geographic Expansion – economies of scale.
Convergence – economies of scope, more products
Globalization

19. Concept Check – Homework assignment for next week
Concept Check – Homework assignment for next week. One from each group to share in class.
What is a bank? How does a bank differ from most other financial- service providers?
Why are some banks reaching out to become one-stop financial-service conglomerates? Is this a good idea?
Which businesses are banking’s closest and toughest competitors? What services do they offer that compete directly with banks’ services?
What is happening to banking’s share of the financial marketplace and why?
How have banking and the financial-services market changed in recent years? What powerful forces are shaping financial markets and institutions today?

20. Appendix: Career Opportunities in Banking and Financial Services
What different kinds of professionals work inside financial firms?
Loan Officers Credit Analysts
Managers of Operations Tellers
Branch Managers
Systems Analyst
Auditing and Control Personnel
Trust Department Specialists

21. Appendix: Career Opportunities in Banking and Financial Services (continued)
What different kinds of professionals work inside financial firms?
Security Analysts and Traders
Marketing Personnel
Human Resources Managers
Investment Banking Specialists
Bank Examiners and Regulators
Regulatory Compliance Officers
Risk Management Specialists

22. SUMMARY
This first chapter explored the many roles played by modern banks and their financial- service competitors. We can also see how rapidly the financial world is changing.
The following represent the most important points in the chapter:
Banking has changed from money changers and money issuers to being a complex giver of information and products.
Banks are pressured on all sides by many key financial-service competitors.

23. SUMMARY continued
3. Banks and non-bank businesses are hard to separate from one another. Yet, the large banks still offer the widest range of products and services.
4. The main functions offered by many financial- service firms include: (a) lending & investing money (credit function); (b) making payments of goods and services for customers (payment function); (c) managing and protecting customer’s cash and property (cash, risk and trust management functions); (d) assisting customers in raising funds and saving (brokerage, investment banking, savings function)

24. SUMMARY continued
5. Major trends affecting performance of financial firms today include: (a) wide range of products; (b) globalization; (c) government regulation and de-regulation; (d) the intense competition between financial service firms; (e) convergence – the fact that so many financial firms look the same and offer many of the same services; (f) consolidation – many more mergers and acquisitions as smaller banks and financial service providers fail; (g) the increase of innovation and automation.