Jiangsu

University

Subject: Financial Markets and Institutions

Assignment: Answer the Questions

Submitted By: Saif Ullah

5103181211
What trend in branch banking has been prominent in the United States in
recent years?

A branch banking organization sells its full menu of services through more than one
office. Regardless of its number of offices it is one corporation with one board of directors.
However, each office has its own management team with limited authority to make decisions
on customer loan applications and other facets of daily operation. Branch banking allows a
financial institution to expand services to an area outside of the home location, functioning as
an extension of the home location. This can be a more cost-effective approach as not all
locations are required to offer the same levels of services as the home location, allowing smaller
formats to provide key services while larger locations can provide the additional services.

There was an increase in the number of branches in the 60’s, 70’s and 80’s as the
population fled cities to suburban areas. However, in recent years the growth in full-service
branches has slowed because of the sky-rocketing costs of land and building office facilities.
In addition, ATM’s and electronic networks have taken over much of the routine banking
transactions. There is not as much need for full service branches as before.

What is a bank holding company?

A bank holding company is a corporation that holds an ownership interest in at least

one bank. A bank holding company, as provided by the Bank Holding Company Act of 1956,
is broadly defined as "any company that has control over a bank". All bank holding companies
in the US are required to register with the Board of Governors of the Federal Reserve System.

Are there any significant advantages or disadvantages for holding

companies or the public if these companies acquire banks or nonbank
business ventures?

Becoming a bank holding company makes it easier for the firm to raise capital than as
a traditional bank. The holding company can assume debt of shareholders on a tax free basis,
borrow money, acquire other banks and non-bank entities more easily, and issue stock with
greater regulatory ease. It also has a greater legal authority to conduct share repurchases of its
own stock.
 The downside includes responding to additional regulatory authorities, especially if
there are more than 2,000 shareholders (note: prior to the Jobs Act or Jumpstart Our Business
Startups Act, the shareholder number was 300), at which point the bank holding company is
forced to register with the Securities and Exchange Commission. There are also added expenses
of operating with an extra layer of administration.

What relationship appears to exist between bank size, efficiency, and

operating costs per unit of service produced and delivered?

For banks and nonbank financial service providers alike, economies of scale and scope
if achieved can lead to significant savings in operating costs with increases in service output.
Economies of scale mean that costs per unit decrease as more units of the same service are
produced. Economies of scope mean that as more different services are provided the joint costs
of producing those services decrease.

The inverse relationship between size and expenses is particularly negative for
corporate overhead (such as accounting, printing, and postage), information technology and
data processing, legal, other financial services, and directors’ fees and other compensation. In
contrast, large BHCs spend proportionately more on consulting and advisory services than
smaller firms, relative to revenue or assets. Large BHCs also incur proportionately higher
expenses related to amortization and impairment of goodwill and other intangible assets.