Banking in the United States

The Federal Reserve System

The Federal Reserve Act of 1913 established the present day Federal Reserve System and brought all banks in the United States under the authority of the federal government, creating the twelve regional Federal Reserve Banks which are supervised by the Federal Reserve Board. Notwithstanding the Glass-Steagall Act of 1932 and the Banking Acts of 1933 and 1935, which were attempts to reform various banking abuses, the Federal Reserve System has remained more or less unchanged through to the present day. The Glass-Steagall Act was repealed in 1999, whereas the Banking Act of 1933 simply strengthened the supervisory powers of federal authorities and created the Federal Deposit Insurance Corporation.

Deregulation

Legislation passed by the federal government during the 1980s, such as the Depository Institutions Deregulation and Monetary Control Act of 1980 and the Depository Institutions Act of 1982, diminished the distinctions between banks and other financial institutions in the United States. This legislation is frequently referred to as "deregulation," and it is often blamed for the failure of over 500 savings and loan associations between 1980 and 1988, and the subsequent failure of the Federal Savings and Loan Insurance Corporation (FSLIC) whose obligations were assumed by the FDIC in 1989. However, some critics of this viewpoint, particularly libertarians, have pointed out that the federal government's attempts at deregulation granted easy credit to federally insured financial institutions, encouraging them to overextend themselves and (thus) fail.

Bank mergers and brands

Some brands in the banking/financial services industry today are the result of a merger where the acquiring bank assumed the brand name of the bank it took over. This happened in the case of these mergers:

    * The Nations Bank/BankAmerica merger

    * The Norwest/Wells Fargo merger

    * The Firststar/US Bank merger

    * The Travelers/Citibank merger

    * The Chemical Bank/Chase merger

    * The Travelers Group/Citicorp merger

    * First Union/Wachovia merger

Top three changes in Banking Profitability

The top three changes affecting or detracting from a bank's profitability are the following:

1)Increasing overhead - primarily due to escalating real estate prices and health benefits increase.

2) Online lending - Non traditional banks have gained a foothold by leveraging the internet.

3) Mortgage Brokers - Mortgage Brokers have gained more than 70% of the mortgage origination market over the past decade. Mortgage Brokers sell originated loans primarily to large wholesale mortgage servicing companies which can offer sharply reduced mortgage pricing as they do not have the same high cost or overhead as a retail bank branch. Therefore a retail bank may be competitive in the mortgage lending field on a retail basis, but not able to offer a comparitive wholesale program to mortgage brokers. Therefore the mortgage brokers often sell the bulk of originations to large mortgage servicing companies.

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