3This section is based on the FOB paper by
Jiangli. Long-term reductions in population in some rural areas also have
implications for banks and are discussed in the section on community banks.
4Actions taken by the FDIC, as well as
interagency efforts to reduce regulatory burden, were outlined in congressional
testimony by the Vice Chairman of the FDIC (Reich ).
5This section is based on interviews with
large-bank supervisory personnel at the Office of the Comptroller of the
Currency and the Federal Reserve Board and on information received from FDIC
examiners who have experience performing or reviewing information technology
examinations. The results are discussed in detail in the FOB paper by Golter
6This section is based on the FOB paper by
7Trends in the importance of banks in U.S.
credit markets are discussed in the FOB paper by Samolyk.
9Tabulations by the FDIC, based on data from Standard and
Poor’s Compu stat. For other measures of banks’ market share, see the FOB
paper by Samolyk, and Boyd and Gertler (1994).
10In 2002 Citicorp earned net income of $10.7
billion from banking operations, and Bank of America Corp. earned $9.2 billion,
whereas the four largest nonbank financial companies earned net income ranging
from $4.6 billion to $5.8 billion (tabulations by the FDIC, based on data from
Standard and Poor’s Compustat).
11This section is based on the FOB paper by
Reidhill, Lamm, and McGinnis. Information on individual institutions is based
on publicly available data.
12These studies consider the cost structures
of the bank as a whole. This is not to deny that there may be scale
efficiencies in specific business lines, such as credit card operations. See
the section on limited-purpose banks.
13“Too big to fail” is a misnomer. The
question for investors is whether unsecured and uninsured creditors of such a
bank would be protected if the bank were to fail.
14The eight largest banking organizations, in
descending order of asset size as of January 2004, are Citigroup, J. P. Morgan
Chase, Bank of America, Wells Fargo, Wachovia, Bank One, Washington Mutual, and
FleetBoston. In the aggregate, these institutions account for 41 percent of
total banking industry assets.
15This section is based on the FOB paper by
16According to this definition, a bank would
be considered a “true” regional bank if it operated in more than one state and
had less than 60 percent of its deposits in one MSA.
17This section is based on the FOB paper by
Critchfield, Davis, Davison,
Gratton, Hanc, and Samolyk.
18Bank size groups are adjusted for inflation
so that, for community banking organizations, the number of organizations with
less than $1 billion in bank/thrift assets in 2002 is compared with the number
that had less than about $650 million in 1985.
19The location of community banks is
determined by the location of the holding company headquarters or, when there
is no holding company, the location of the institution’s headquarters. Division
into rural, small metro, suburban, and urban areas depends on whether the bank
is located in a metropolitan statistical area (MSA) and on population density.
20Although banks in counties suffering
depopulation showed no greater proportional decline in number than banks in
other areas, the performance of banks in counties suffering depopulation
differed from that of banks in growing areas, as discussed in the FOB paper by
Anderlik and Walser, and in Myers and Spong (2003).
21The 12 states where unit banking existed as
of the end of 1977 were Colorado, Illinois, Kansas, Minnesota, Missouri,
Montana, Nebraska, North Dakota, Oklahoma, Texas, West Virginia, and Wyoming
(Conference of State Bank Supervisors , 95).
22During the 1980s, failures were higher among
new or “young” banks than among existing banks. In the early 1980s a large
number of new national banks were chartered following a change in policy by the
Office of the Comptroller of the Currency, a change designed partly to increase
competition. At the time, banks obtaining a national charter were, by statute,
automatically insured by the FDIC. In 1991, as a result of the FDIC Improvement
Act, the FDIC obtained separate authority to approve insurance for national
banks. See FDIC (1997), 106.
23Such reasoning does not apply, or applies
with considerably less force, to owner-operated banks that do not rely on
uninsured or unprotected sources of funds. Returns of owner-managers may be
augmented by compensation received as officers of the bank, and there may be no
outside shareholders to challenge the decision to remain independent.
24From 1992 to 2001 community banks located in
counties experiencing population declines recorded ROAs ranging from 1.0
percent to 1.2 percent—not much lower than the ROAs of banks located in
counties experiencing population growth.
25Myers and Spong (2003) reached a similar
26Credit union offices and deposits are
classified geographically according to the location of the organization’s
headquarters. For the large majority of credit unions this probably is
acceptable, although for large credit unions—such as those serving military
personnel—this may distort data on the location of credit union resources.
27Eighty percent of credit unions are located
in MSAs, compared with 54 percent of community bank offices.
28Bassett and Brady (2001) reached a similar
conclusion. It should be noted that the more rapid percentage growth rates of
small banks may partly reflect the fact that the internal growth rates of very
large banks may be more limited by the size of markets and the marginal cost of
increases in funding.
29The extensive literature on the economic
role of community banks is discussed in the FOB paper by Critchfield et al.
30This section is based on the FOB paper by
Yom. Credit card banks are defined as institutions that have more than 50
percent of total assets in loans and credit card asset-backed securities (ABS)
and have more than 50 percent of total loans and credit card ABS in credit card
loans and credit card ABS. Subprime lenders are institutions with more than 25
percent of tier 1 capital in subprime loans. Internet banks’ primary contact
with customers is the Internet. Data used in this study are based on 37 credit
card banks, 120 subprime banks, and 17 Internet banks.
31This section is based partly on the FOB
paper by Critchfield and Jones.
33Current law requires that special
assessments in systemic-risk resolutions be based on assets less tangible equity
and subordinated debt, whereas regular assessments are based on domestic
deposits. Large banks tend to fund assets with nondeposit liabilities and
foreign deposits to a greater extent than small banks.
34Evidence on the effect of consolidation on
small business credit is discussed in Avery and Samolyk (2003).
35The section on combinations of banking and
commerce is based on the FOB paper by Blair.
36This section is based on the FOB paper by
Bennett and Nuxoll.
37The section on governance issues is based on
the FOB paper by Craig.
39The Sarbanes-Oxley Act applies to publicly
held institutions—institutions that issue securities registered with the SEC or
with a federal financial regulatory agency. In addition, nonpublic banking
institutions with more than $500 million in assets are required to comply with
the SEC’s definition of auditor independence.
40See The Report of the Task Group on
Regulation of Financial Services (1984).
41This section is based on the FOB paper by
42The last issue has implications for the
operation of U.S. financial conglomerates in Europe, where they must meet a
requirement for consolidated supervision.
43This section is based on the FOB paper by
Bradley and Shibut.
44This section is based on the FOB paper by