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

2. Key Topics Powerful Forces Reshaping 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
Appendix: Career Opportunities in Banking and Financial Services

3. Introduction
Banks are the principal source of credit (loanable funds) for millions of individuals and families and for many units of government
Worldwide banks grant more installment loans to consumers (individuals and families) than any other financial-service provider
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 its existence
Historically, banks have been recognized for the great range of financial services they offer
Bank service menus are expanding rapidly today to include investment banking, insurance protection, financial planning, advice for merging companies, the sale of risk-management services to businesses and consumers, and numerous other innovative financial products

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
Industry leaders
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 a narrower, but often more personalized, menu of 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 had come to be defined, not so much by its array of service offerings, 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 to individuals and institutions planning to invest and needing credit to do so
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 authorities in the financial-services field fear that this apparent erosion of market share may imply that traditional banking is dying
Other experts counter 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 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 of differentiating banks from other financial-service providers is difficult today

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
Carrying Out Currency Exchange
Discounting Commercial Notes and Making Business Loans
Offering Savings Deposits
Safekeeping of Valuables and Certification of Value
Supporting Government Activities with Credit
Offering Checking Accounts (Demand Deposits)
Offering Trust Services

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
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. Key Trends Affecting All Financial-Service Firms – Crisis, Reform, and Change
Service Proliferation
Rising Competition
Government Deregulation and then Reregulation
Crisis, Reform, and Change in Banking and Financial Services
An Increasingly Interest-Sensitive Mix of Funds
Technological Change and Automation
Consolidation and Geographic Expansion
Convergence
Globalization

18. Quick Quiz
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?

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

20. 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