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The Transformation of the U.S. Banking Industry: What a Long, Strange Trips It's Been

Listed author(s):
  • Allen N. Berger

    (Board of Governors of the Federal Reserve)

  • Anil K. Kashyap

    (University of Chicago)

  • Joseph M. Scalise

    (Board of Governors of the Federal Reserve)

This paper summarizes and quantifies past changes in the U.S. commercial banking industry and forecasts what the future may hold. It emphasizes regulatory changes and technical and financial innovations as the central driving forces behind transformation of the industry. Changes in the regulatory environment include the deregulation of deposit accounts, several major changes in capital requirements, reductions in reserve requirements, expansion of bank powers, and liberalization of geographic restrictions on intrastate and interstate banking. Important technical innovations that have affected the banking industry include the advances in information processing and telecommunications technologies that facilitate the low-cost, rapid transfer of information and funds that fuel modern financial markets. Innovations in applied finance include those that have allowed the securitization of many traditional bank assets and have expanded the scope and volume of financial derivative activity. Many of these regulatory, technical and financial changes have altered the way in which banks compete with each other, and have brought about substantial external competition to U.S. banking organizations from foreign banks and from nonbank financial intermediaries. To document and assess the effects of these forces, the authors examine the evolution over time of the balance sheets, off-balance sheet activities, and income statements of all insured U.S. commercial banks from 1979 through 1994. The authors believe the most novel aspect of their analysis derives from the estimation of the patterns of bank lending to borrowers of different sizes over time. A key question they examine is how the well-known reduction in bank commercial and industrial lending of the early 1990s affected different sizes of borrowers. They estimate a 34.8 percent real contraction in loans to borrowers with bank credit of less than $1 million during the first half of the 1990s, a substantial decline in lending to

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File URL: http://www.brookings.edu/~/media/Files/Programs/ES/BPEA/1995_2_bpea_papers/1995b_bpea_berger_kashyap_scalise_gertler_friedman.pdf
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Article provided by Economic Studies Program, The Brookings Institution in its journal Brookings Papers on Economic Activity.

Volume (Year): 26 (1995)
Issue (Month): 2 ()
Pages: 55-218

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Handle: RePEc:bin:bpeajo:v:26:y:1995:i:1995-2:p:55-218
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  1. Peek, Joe & Rosengren, Eric, 1995. "Bank regulation and the credit crunch," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 679-692, June.
  2. Garcia, Gillian, 1995. "Implementing FDICIA's mandatory closure rule," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 723-725, June.
  3. James S. Ang, 1992. "On the Theory of Finance for Privately Held Firms," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 1(3), pages 185-203, Spring.
  4. Christine A. Pavel & David Phillis, 1987. "Why commercial banks sell loans: an empirical analysis," Proceedings 152, Federal Reserve Bank of Chicago.
  5. Allen N. Berger, 1994. "The relationship between capital and earnings in banking," Finance and Economics Discussion Series 94-2, Board of Governors of the Federal Reserve System (U.S.).
  6. Seth, Rama & Quijano, Alicia M., 1993. "Growth in Japanese lending and direct investment in the United States: are they related?," Japan and the World Economy, Elsevier, vol. 5(4), pages 363-372, December.
  7. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February.
  8. Henry S. Terrell, 1993. "U.S. branches and agencies of foreign banks: a new look," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 913-925.
  9. Jones, David S. & King, Kathleen Kuester, 1995. "The implementation of prompt corrective action: An assessment," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 491-510, June.
  10. Cordell, Lawrence R. & King, Kathleen Kuester, 1995. "A market evaluation of the risk-based capital standards for the U.S. financial system," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 531-562, June.
  11. Koehn, Michael & Santomero, Anthony M, 1980. " Regulation of Bank Capital and Portfolio Risk," Journal of Finance, American Finance Association, vol. 35(5), pages 1235-1244, December.
  12. Joshua N. Feinman, 1993. "Reserve requirements: history, current practice, and potential reform," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 569-589.
  13. David C. Wheelock & Paul W. Wilson, 1993. "Explaining bank failures: deposit insurance, regulation, and efficiency," Working Papers 1993-002, Federal Reserve Bank of St. Louis.
  14. William B. English & Brian Reid, 1995. "Profits and balance sheet developments at U.S. commercial banks in 1994," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 545-569.
  15. Allen N. Berger & Richard J. Herring & Giorgio P. Szego, 1995. "The role of capital in financial institutions," Finance and Economics Discussion Series 95-23, Board of Governors of the Federal Reserve System (U.S.).
  16. Robert N. McCauley & Rama Seth, 1992. "Foreign bank credit to U.S. corporations: the implications of offshore loans," Quarterly Review, Federal Reserve Bank of New York, issue Spr, pages 52-65.
  17. Schranz, Mary S, 1993. "Takeovers Improve Firm Performance: Evidence from the Banking Industry," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 299-326, April.
  18. Jagtiani, Julapa & Saunders, Anthony & Udell, Gregory, 1995. "The effect of bank capital requirements on bank off-balance sheet financial innovations," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 647-658, June.
  19. Furlong, Frederick T. & Keeley, Michael C., 1989. "Capital regulation and bank risk-taking: A note," Journal of Banking & Finance, Elsevier, vol. 13(6), pages 883-891, December.
  20. Lawrence M. Benveniste & Allen N. Berger, 1987. "Securitization with recourse: an instrument that offers uninsured bank depositors sequential claims," Research Papers in Banking and Financial Economics 97, Board of Governors of the Federal Reserve System (U.S.).
  21. Hancock, Diana & Laing, Andrew J. & Wilcox, James A., 1995. "Bank capital shocks: Dynamic effects on securities, loans, and capital," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 661-677, June.
  22. Herbert L. Baer & Christine A. Pavel, 1988. "Does regulation drive innovation?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Mar, pages 3-15.
  23. Avery, Robert B. & Berger, Allen N., 1991. "Risk-based capital and deposit insurance reform," Journal of Banking & Finance, Elsevier, vol. 15(4-5), pages 847-874, September.
  24. Gennotte, Gerard & Pyle, David, 1991. "Capital controls and bank risk," Journal of Banking & Finance, Elsevier, vol. 15(4-5), pages 805-824, September.
  25. Christine A. Pavel & David Phillis, 1987. "Why commercial banks sell loans: an empirical analysis," Economic Perspectives, Federal Reserve Bank of Chicago, issue May, pages 3-14.
  26. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
  27. Tian Guoqiang & Li Qi, 1995. "On Nash-Implementation in the Presence of Withholding," Games and Economic Behavior, Elsevier, vol. 9(2), pages 222-233, May.
  28. Benveniste, Lawrence M. & Berger, Allen N., 1987. "Securitization with recourse : An instrument that offers uninsured bank depositors sequential claims," Journal of Banking & Finance, Elsevier, vol. 11(3), pages 403-424, September.
  29. Berger, Allen N. & Hunter, William C. & Timme, Stephen G., 1993. "The efficiency of financial institutions: A review and preview of research past, present and future," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 221-249, April.
  30. George Budzeika, 1991. "Determinants of the growth of foreign banking assets in the United States," Research Paper 9112, Federal Reserve Bank of New York.
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