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In the United States the first bank was the Bank of North America, established (1781) in
Philadelphia. Congress chartered the first Bank of the United States in 1791 to engage in general
commercial banking and to act as the fiscal agent of the government, but did not renew its
charter in 1811. A similar fate occur the second Bank of the United States, chartered in 1816 and
Prior to 1838 a bank charter could be obtained only by a specific legislative act, but in
that year New York adopted the Free Banking Act, which permitted anyone to engage in
banking, upon compliance with certain charter conditions. Free banking spread rapidly to other
states, and from 1840 to 1863 all banking business was done by state-chartered institutions. To
correct such conditions, Congress passed (1863) the National Bank Act, which provided for a
In 1865, by granting national banks the authority to issue bank notes and by placing a
prohibitive tax on state bank notes, an amendment to the act brought all banks under federal
supervision. Most banks in existence did take out national charters, but some, being banks of
deposit, were unaffected by the tax and continued under their state charters, thus giving rise to
what is generally known as the “dual banking system.” The number of state banks expanded
Since the establishment of the Federal Reserve System, federal banking legislation has
been limited largely to detailed amendments to the National Bank and Federal Reserve acts. The
Glass-Steagall Act of 1932 and the Banking Act of 1933 together formed an extensive reform
measure designed to correct the abuses that had led to numerous bank crises in the years
Several deregulatory moves made by the federal government in the 1980s diminished the
distinctions among various financial institutions in the United States. Two major changes were
the Depository Institutions Deregulation and Monetary Control Act (1980) and the Depository
Institutions Act (1982), which allowed savings and loan associations to engage in often-risky
commercial loans and real estate investments, and to receive checking deposits. By 1984, banks
had federal support in buying discount brokerage firms, and commercial banks were beginning to
acquire failed savings banks; in 1985 interstate banking was declared constitutional (Infoplease,
2010).
Such deregulation was blamed for the unprecedented number of bank failures among
savings and loan associations, with over 500 such institutions closing between 1980 and 1988.
The Federal Savings and Loan Insurance Corporation (FSLIC), until it became insolvent in 1989,
insured deposits in all federally chartered and in many state-chartered savings and loan
In the 1990s interstate banking was finally allowed, creating nationwide banks of
unprecedented size. But Congress's attempt to force banks to make home loans to people who
had limited creditworthiness, while encouraging Fannie Mae and Freddie Mac to take these
dubious loans off their hands so that the banks could make still more of them, created another
crisis in the banking system that is now playing out (Wsj, 2008).
Further deregulation occurred in 1999, when Congress overhauled the entire U.S.
financial system. Among other actions, the legislation cancelled officially the Glass-Steagall Act,
thus allowing banks to enter the insurance and securities businesses. Supporters predicted that
the measure would permit U.S. banks to diversify and compete more effectively on an
international scale. Opponents warned that this deregulation could lead to failures of many
financial institutions, as had occurred with the savings and loans (Infoplease, 2010).
In the last decades of the 20th century, computer technology transformed the banking
industry. The wide distribution of automated teller machines (ATMs) by the mid-1980s gave
Banks safeguard money and provide loans, credit, and payment services such as checking
accounts, debit cards, and cashier's checks. Banks also may offer investment and insurance
products. The variety of models for cooperation and integration among finance industries has
diminished some of the traditional distinctions between banks, insurance companies, and
securities firms. But then also the banks continue to maintain and perform their primary role that
Driving forces for the Industry and the Impact of Technology on the Banking Industry
distribution technology and changing interest rates have influenced all aspects of banking
activity and regarded as the main driving forces for the changes in banking industry and among
all these driving forces technology is the main driving force of Banking Industries these days
(Oppapers, 2010).
Entry barrier have been declining, new competitor have emerged. Some financial
products and services have become more transparent and commodities, customer show
willing to unbundled the demand for financial products and services, all these lead to a
more competitive market environment. Due to lowered entry and exist and
their cost. Bank seeks to get economy of scale in bank procession instead of being a big
bank. Bank seeks to secure the optimal business structure, and secure the competitive
imperative of economy of scale. There are other options to get economy of scale,
including joint venture and confederation of financial firms. Small firms also can get
The banking and finance value chain is unique because it is based entirely around the
production of services. In this industry, the "raw materials" are lenders and borrowers
(individuals and corporations) that appear at both the beginning and the end of the chain. The
products provided by this industry are divided between credit intermediaries (both depository
The value chain is used to identify activities that are core capabilities and sources of
competitive advantage as well as activities that are non-core activities (Lamarque, 1999). The
process view of the value chain enables on the one side the allocation of resources. On the other
side the chain view mitigates to identify how different activities interact with each other, i.e.
what outcomes one activity delivers to another activity and what transaction costs would result
from in sourcing, outsourcing etc. This process view also seems to support that the value chain is
better capable to analyze activities with regard to sourcing decisions than a listing of value
The banking business is customer driven and therefore the banking value chain starts
from the market side. The value process starts with advertising a newly developed product or
service to the market. Secondly, the product/service is sold to customers, e.g. the credit contract
will be signed by the customer. In a third step the product will be provided to the customer, e.g.
the credit amount is paid to the account of the customer. Finally the corresponding transactions,
Value chain for the Banking Industry is divided into the two main activities that include
primary activities and the supporting activities. Primary activities include marketing, sales,
provision of the product itself, e.g. the payment of the credit amount to the client. All products of
a bank can be included under the terms funding, investment and services. The financial
intermediation business is reflected in the “funding” and “investment” parts of the product
activities. The transactions part of the value chain is processing products and services offered by
• trading transactions for the exchange and price determination of securities and
derivatives.
• custody transactions including infrastructure, e.g. custody of securities and deposit box
facilities.
technology and human resources (Canals, 1993, 199; Porter, 1985). Additionally to these three
supporting activities, risk management plays a vital role in banking and has to be added
(Lamarque, 1999).
The average person can't come along and start up a bank as it requires a lot of
Government regulations, but there are services, such as internet bill payment, on which
entrepreneurs can invest their money. Banks are fearful of being forced out of the payments
business, because it is a good source of fee-based revenue. Another trend that poses a threat is
companies offering other financial services. What would it take for an insurance company to
start offering mortgage and loan services? Not much. Also, when analyzing a regional bank,
remember that there is possibility of a real threat when a mega bank enters into the market
(Porter, 2008).
Power of Suppliers
The suppliers of capital might not pose a big threat, but the threat of suppliers tempting
away human capital does. If a talented individual is working in a smaller regional bank, there is
the chance that person will be lured away by bigger banks, investment firms, etc (Investopedia,
2010).
Power of Buyers
The individual doesn't pose much of a threat to the banking industry, high switching costs
is one of the major factors that affect the power of buyers. If a person has a mortgage, car loan,
credit card, checking account and mutual funds with one particular bank, it can be extremely
tough for that person to switch to another bank. In an attempt to lure in customers, banks try to
lower the price of switching, but many people would still rather stick with their current bank. On
the other hand, large corporate clients have banks wrapped around their little fingers. Financial
institutions by offering better exchange rates, more services, and exposure to foreign capital
markets- work extremely hard to get high-margin corporate clients (Porter, 2008).
Availability of Substitutes
As we know that there are plenty of substitutes in the banking industry. Banks offer a
suite of services over and above taking deposits and lending money, but whether it is insurance,
mutual funds or fixed income securities, chances are that there is non-banking financial services
company that can offer similar services. On the lending side of the business, banks are seeing
competition rise from unconventional companies for example Sony, General Motors, and
Microsoft If car companies are offering 0% financing, why would anyone want to get a car loan
Competitive Rivalry
The banking industry is highly competitive. The financial services industry has been
around for hundreds of years and just about everyone who needs banking services already has
them. Because of this, banks must attempt to lure clients away from competitor banks. They do
this by offering lower financing, preferred rates and investment services. The banking sector is in
a race to see who can offer both the best and fastest services, but this also causes banks to
experience a lower return on investment. They then have an incentive to take on high-risk
projects. Larger banks would prefer to take over or merge with another bank rather than spend
Bank of America
December 31, 2008, the company had almost $2.5 trillion in assets and $240 billion in
shareholders' equity pro forma for the Merrill Lynch acquisition and preferred stock issuance,
with 6,139 banking centers in 30 states servicing approximately 54 million consumer and small
business relationships. Global Consumer & Small Business (including Card Services) comprises
about 50% of earnings, Global Corporate & Investment Banking comprises about 30% of
earnings (including 10% from Capital Markets & Advisory Services, 8% from Business Lending,
and 12% from Treasury Services), and Global Wealth Management comprises about 15% of
Bank of America’s mission is to direct funds to the people who not only are served by
their institution, but who also are positioned to serve themselves by contributing their energy and
expertise in the areas most critical to community health (Bank of America, 2010).
Bank of America has different goals for different set of people. For customers and clients,
Bank’s goal is to increase satisfaction and loyalty by providing the best value and service. For
associates, Bank’s Goal is to create a workplace in which all associates can excel and rewards
are based on results. For shareholders, Banks goal is to produce strong and consistent financial
returns by attracting and retaining customers and clients and by deepening relationships in all our
businesses and lastly for communities, Bank’s goal is to strengthen the communities through
Long term objectives at Bank of America includes increase market share, increase
customer base, increase profitability, reduce overhead expenses and reduce the service fee to the
minimum. Reducing the service fee helps bank to attract more and more customers which in turn
reduce the overhead expenses and helps in increasing profitability as well as the market share of
Bank of America Corporation is a financial services company, the largest bank holding in
the United States, by assets and the second largest bank by market capitalization. Bank of
America serves clients in more than 150 countries and has relationship with 99 percent of the
U.S fortune 500 companies. There are so many rivals of Bank of America. There are so many
competitors like Wells Fargo Company, Wachovia Corporation and Citigroup financial services.
Bank of America is dominated greatly by product innovation. Technology is the main factor that
is dominating the industry. Bank also provides wide variety of products and services. Various
types of accounts and credit cards are provided by Bank of America. The Bank is also affected
by demand and the supply conditions prevailing in the industry. Bank of America also enjoys
technical know-how across more companies and more countries and regulatory influences and
Government policy changes. Every country is favoring Globalization these days and because of
this competition is increasing day by day. The internet capabilities and applications are also
increasing day by day. Though the company has been succeeded in doing banking online but still
the bank needs to do the same for attracting more and more customers. The Bank has to do
aggressive marketing and also have to provide various promotional schemes to cater the needs of
the people.
interest rates could adversely affect net interest margin - the difference between the yield the
bank earns on assets and the interest rate it pays for deposits and other sources of funding -
which could in turn affect earnings. Market risks include fluctuations in interest and currency
exchange rates, and equity and futures prices. Such risks affect loans, deposits, securities, short-
term borrowings, long-term debt, trading account assets and liabilities, and derivatives.
customer loyalty, internet banking education, constant customer service monitoring and various
other promotional schemes. Bank of America provides knowledge to the customers regarding
internet banking. The ability to maintain the customer service is very strong at Bank of America.
Providing promotional schemes to existing as well as to the new customers is also one of the Key
currently facing its greatest amount of competition in the domestic consumer market from Wells
Fargo Corporation. Wells Fargo Corporation is expanding day by day and poses the greatest
threat to Bank of America’s attempt to penetrate U.S. consumer market. There are several small
competitors in the market also like Washington Mutual and many others. These smaller
institutions are competing for market share held by Bank of America. This is significant because
the U.S. consumer banking market is already heavily saturated, and there is no room for new
growth. Any increase in market share seen by one company will be due to a decrease in market
share held by another company. As such, the more competitors in the market place, the more
difficult it will be for Bank of America to secure the greatest portion in the domestic consumer
banking market.
In examining the position of Bank of America in the product life cycle, it is important to
analyze its location from two different viewpoints. First and foremost, analyzing Bank of
America from a domestic standpoint, Bank of America is currently operating in the maturity
stage of the product life cycle. This assessment has been reached through analyzing the three
main components of Bank of America’s consumer banking: Personal Banking, Credit Card
services, and Loans and Mortgages. With competitive pricing, Bank is able to target a large
potential audience for their products. Offering the credit card services with significant product
line depths, Bank of America is able to actively market their credit card services to a wide target
audience, and in doing so capture a highly diversified market composed of consumers with a
wide array of preferences. Bank of America’s branches and its wide location of ATM’s allover is
the major factor for its domestic growth. Talking from the international viewpoint about Bank of
America, Bank of America products and services are at the growth stage of the product life
cycle. Although the bank has presence in more than 20 countries, still the bank can expand its
Industry Rankings
Below mentioned are the Top 10 U.S. banking companies in earnings in which Bank of
America ranked number 1 and had earnings of $5233 millions in 2009 followed by Wells Fargo
earnings of $4959 millions and also mentioned the Top 10 U.S Banking Companies in equity
number 2 while comparing the market capitalization ending June 30, 2009.
Competition
Bank of America competes across each of its three main business segments, and is the
largest company in the U.S.-focused Global Consumer and Small Business Banking segment.
The company continues to be the leading issuer of credit cards through endorsed marketing and
largest holder of deposits nationwide. Internationally, Bank of America has significant room for
improvement, with its US market share being 6 times greater than its non-US market share
(Wikinvest, 2010).
Bank of America is the largest deposit holder in the U.S. by market share, a position that
the firm has held for years. Its merger with Countrywide Financial (CFC) has allowed it maintain
its dominance over the Wells Fargo - Wachovia (WB) merger (Wikinvest, 2010).
Domestic Deposit Market Share (%)
2004 2005 2006 2007 2008
Bank of 10.07 10.36 9.54 10 11.33
America
Wells Fargo 4.90 4.64 5.20 4.2 10.33
J P Morgan 4.18 7.07 7.47 7.4 9.85
Chase
In first half of 2009, there was total lending $995 billion in which Bank of America got
20.5% share. Bank of America was ranked number two and Wells Fargo was ranked number one
with a share of 23.5%. Lending of $995 billion includes the major lending in the retail sector that
Strengths
Bank of America’s size, scale and global presence enable it to provide customers and
clients with a full range of world-class products and services, delivered with convenience and
efficiency. Bank of America’s businesses have leading market shares in every major sector of the
industry, creating the opportunity to build broad, deep relationships and to generate strong,
balanced earnings. Innovation in products and services give it a major strength in attracting more
and more customers. Bank of America has a culture of service excellence and the skills,
technology and infrastructure to back it up. Bank of America boasts the country's most extensive
branch network; with more than 6,100 locations covering some 30 states from coast to coast
Weaknesses
The wholesale banking operations of the Bank of America are weak as compared to the
retail banking operations. Bank of America is not quick as compared to smaller and regional
operators. The bank takes time to enforce new functions and products and services in its banking.
Bank of America has lost the ability to compete head-to-head in an environment where it lacks a
size advantage.
Opportunities
expansion in developing countries like India and China, helps in increasing revenue. Bank of
America is always working to improve satisfaction, reduce problems and create solutions. Bank
of America is attracting and retaining associates who can lead in a global organization, and is
building on leading staffing, training and leadership development programs. As Bank integrates
businesses, it means bringing together a wide spectrum of products and services for customers
and clients while improving quality, accuracy and efficiency and lowering costs. Investment in
technology and innovation to improve productivity and better meet associate, customer, client
Threats
Financial economic turmoil posed as great threat to Bank of America. Though the country
has overcome from recession, but still it has not been overcome up to the full extent. As we all
know that globalization is increasing and due to this more and more banks are entering the U.S
market. So the increased competition posed a major threat to the Bank of America. Increase in
restrictions in capital market and Government regulations also posed threat to Bank of America
(Wikiswot, 2010).
Financial Analysis
Earnings per share are the earning available to equity shareholders after paying dividends
and all other expenses. Earnings per share are calculated by the formulae: Net earnings available
to equity shareholders/number of shares. Bank of America has maximum earnings in 2006 and
minimum in 2008. The earnings have decreased substantially for the bank because of the
recession.
Diluteearningper share
$4.59
$4.04
$3.55 $3.64
$3.30
$3.05
asset. Return on assets is an indicator of how profitable a company is before leverage, and is
compared with companies in the same industry. Since the figure for total assets of the company
depends on the carrying value of the assets, some caution is required for companies whose
carrying value may not correspond to the actual market value. Return on assets is a common
figure used for comparing performance of financial institutions (such as banks), because the
majority of their assets will have a carrying value that is close to their actual market value. Bank
of America earns maximum return on total assets in 2002 which was 1.46 and minimum return
0.94
0.22
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
As we all know that internet and online banking are buzzwords in the financial world
today, all over the country non-traditional financial institutions are popping up with virtual and
Internet banks. These financial institutions don’t have any physical location except in the cyber
universe. The banks must have to get into the cyber space and move away from traditional bricks
and mortar locations. By doing this, banks will get a presence on the internet and banks will also
make changes in order to compete in customer retention in response to the competition from
Today and in the future, banks will be referred to as financial service companies.
Deregulation has allowed for banks to merge with other institutions and has erased the borders
that kept them apart. Typical savings and loan companies have already become obsolete and
movement into other financial areas is necessary. Banks will continue the trend set by CitiGroup,
provides a new outlet to consumers all across the globe. How effective the Internet will be
remains to be seen, but it is already causing major changes. Those corporations that can make e-
commerce succeed will be successful and those that cannot will face major obstacles. The credit
card industry alone will provide billions of dollars in income through the Internet for financial
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