IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

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

  • Allen N. Berger
  • Anil K. Kashyap
  • Joseph Scalise

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 large borrowers, with lending to medium sized borrowers at nearly the same level before the 1990s. In looking at the future, the authors suggest that several thousand banking organizations are likely to disappear under nationwide banking, but that the remaining banks will still number in the thousands. They also predict further contraction in the extension of bank credit to small businesses, although not as large as reductions in the first half of the 1990s. They suggest that because of organizational diseconomies, it may be difficult for the larger organizations to invest profitably in relationship-based small business loans. The loss of share for small loans due to the consolidation of banking assets predicted by the model should be considered as an upper bound, because other banks or nonbank competitors will likely step in and reissue some of these loans. Nonetheless, many of the eliminated loans likely will not be reissued because they are negative NPV investments. The authors predict that these changes will occur within the first five years after the implementation of nationwide banking.

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Paper provided by Wharton School Center for Financial Institutions, University of Pennsylvania in its series Center for Financial Institutions Working Papers with number 96-06.

as
in new window

Length:
Date of creation: Nov 1995
Date of revision:
Handle: RePEc:wop:pennin:96-06
Note: This paper is only available in hard copy
Contact details of provider: Postal:
3301 Steinberg Hall-Dietrich Hall, 3620 Locust Walk, Philadelphia, PA 19104.6367

Phone: 215.898.1279
Fax: 215.573.8757
Web page: http://fic.wharton.upenn.edu/fic/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Herbert L. Baer & Christine A. Pavel, 1988. "Does regulation drive innovation?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Mar, pages 3-15.
  2. 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.
  3. 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.
  4. 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.).
  5. 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.
  6. 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.
  7. Berger, Allen N, 1995. "The Relationship between Capital and Earnings in Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 432-56, May.
  8. Garcia, Gillian, 1995. "Implementing FDICIA's mandatory closure rule," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 723-725, June.
  9. 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.
  10. Koehn, Michael & Santomero, Anthony M, 1980. " Regulation of Bank Capital and Portfolio Risk," Journal of Finance, American Finance Association, vol. 35(5), pages 1235-44, December.
  11. 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.
  12. 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.
  13. 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.
  14. Joe Peek & Eric S. Rosengren, 1993. "Bank regulation and the credit crunch," Working Papers 93-2, Federal Reserve Bank of Boston.
  15. Berger, Allen N. & Herring, Richard J. & Szego, Giorgio P., 1995. "The role of capital in financial institutions," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 393-430, June.
  16. Wheelock, David C & Wilson, Paul W, 1995. "Explaining Bank Failures: Deposit Insurance, Regulation, and Efficiency," The Review of Economics and Statistics, MIT Press, vol. 77(4), pages 689-700, November.
  17. 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.
  18. 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.
  19. Robert B. Avery & Allen N. Berger, 1990. "Risk-based capital and deposit insurance reform," Working Paper 9101, Federal Reserve Bank of Cleveland.
  20. Gennotte, Gerard & Pyle, David, 1991. "Capital controls and bank risk," Journal of Banking & Finance, Elsevier, vol. 15(4-5), pages 805-824, September.
  21. 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.
  22. 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.
  23. 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.
  24. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
  25. George Budzeika, 1991. "Determinants of the growth of foreign banking assets in the United States," Research Paper 9112, Federal Reserve Bank of New York.
  26. 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.
  27. 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.
  28. Christine A. Pavel & David Phillis, 1987. "Why commercial banks sell loans: an empirical analysis," Proceedings 152, Federal Reserve Bank of Chicago.
  29. 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.
  30. 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.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wop:pennin:96-06. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.