454
Banking Industry: Structure
and Competition
Preview
The operations of individual banks (how they acquire, use, and manage funds
to make a profit) are roughly similar throughout the world. In all countries,
banks are financial intermediaries in the business of earning profits. When you
consider the structure and operation of the banking industry as a whole, how-
ever, the United States is in a class by itself. In most countries, four or five large
banks typically dominate the banking industry, but in the United States there
are on the order of 7,000 commercial banks.
Is more better? Does this diversity mean that the American banking system
is more competitive and therefore more economically efficient and sound than
banking systems in other countries? What in the American economic and politi-
cal system explains this large number of banking institutions? In this chapter
we try to answer these questions by examining the historical trends in the com-
mercial banking industry and its overall structure.
We start by examining the historical development of the banking system. We
then go on to look at the commercial industry in detail. In addition to looking at
our domestic banking system, we also examine the forces behind the growth in
international banking to see how it has affected us in the United States. Finally, we
examine how financial innovation has increased the competitive environment for
the banking industry and is causing fundamental changes in it.
19
C H A P T E R
Historical Development of the Banking System
The modern commercial banking industry in the United States began when
the Bank of North America was chartered in Philadelphia in 1782. With the
success of this bank, other banks opened for business, and the American
banking industry was off and running. (As a study aid, Figure 19.1 provides
a time line of the most important dates in the history of American bank-
ing before World War II.)
Chapter 19 Banking Industry: Structure and Competition
455
A major controversy involving the industry in its early years was whether the fed-
eral government or the states should charter banks. The Federalists, particularly
Alexander Hamilton, advocated greater centralized control of banking and federal
chartering of banks. Their efforts led to the creation, in 1791, of the Bank of the
United States, which had elements of both a private bank and a central bank, a gov-
ernment institution that has responsibility for the amount of money and credit sup-
plied in the economy as a whole. Agricultural and other interests, however, were quite
suspicious of centralized power and hence advocated chartering by the states.
Furthermore, their distrust of moneyed interests in the big cities led to political pres-
sures to eliminate the Bank of the United States, and in 1811 their efforts met with
success, when its charter was not renewed. Because of abuses by state banks and the
clear need for a central bank to help the federal government raise funds during the
War of 1812, Congress was stimulated to create the Second Bank of the United States
in 1816. Tensions between advocates and opponents of centralized banking power
were a recurrent theme during the operation of this second attempt at central bank-
ing in the United States, and with the election of Andrew Jackson, a strong advo-
cate of states’ rights, the fate of the Second Bank was sealed. After the election in
1832, Jackson vetoed the rechartering of the Second Bank of the United States as
a national bank, and its charter lapsed in 1836.
Until 1863, all commercial banks in the United States were chartered by the bank-
ing commission of the state in which each operated. No national currency existed,
and banks obtained funds primarily by issuing banknotes (currency circulated by the
banks that could be redeemed for gold). Because banking regulations were extremely
Bank of North America is chartered.
Bank of the United States is chartered.
Bank of the United States’
charter is allowed to lapse.
Second Bank of the
United States is chartered.
Andrew Jackson vetoes rechartering
of Second Bank of the United States;
charter lapses in 1836.
National Bank Act of 1863
establishes national banks
and Office of the Comptroller
of the Currency.
Federal Reserve Act of 1913
creates Federal Reserve System.
Banking Act of 1933
(Glass-Steagall) creates
Federal Deposit Insurance
Corporation (FDIC) and separates
banking and securities industries.
Do'stlaringiz bilan baham: 
