CHAPTER 1
 
AN OVERVIEW OF THE CHANGING FINANCIAL-SERVICES SECTOR
    

Goal of This Chapter: In this chapter you will learn about the many roles financial service-providers play in the economy today. You will examine how and why the banking industry and the financial services marketplace as a whole is rapidly changing, becoming new and different as we move forward into the future. You will also learn about new and old services offered to the public.
 
 

Key Topics in This Chapter

 

• Powerful Forces Reshaping the Industry
• What Is a Bank?
• The Financial System and Competing Financial-Service Institutions
• Old and New Services Offered to the Public
• Key Trends Affecting All Financial-Service Firms
• Appendix: Career Opportunities in Banking and Financial Services

 

Chapter Outline

 
I.     Introduction: Powerful Forces Reshaping the Industry
II.   What Is a Bank?
A. Defined by the Functions:
B.     Banks and their Principal Competitors
C. Many Kinds of Banks
D. Money-Centered Banks vs. Community Banks
E. The Legal Basis for Banking
III.  The Financial System and Competing Financial-Service Institutions

1. Roles of the Financial System
2. The Competitive Challenge for Banks
3. Leading Competitors with Banks

1. Savings Associations
2. Credit Unions   
3. Fringe Banks
4. Money Market Funds
5. Mutual Funds
6. Hedge Funds
7. Security Brokers and Dealers
8. Investment Banks
9. Finance Companies
10. Financial Holding Companies
11. Life and Property/Casualty Insurance Companies

 
IV. Services Banks and Many of Their Closest Competitors Offer the Public

1.  Services Banks Have Offered for Centuries

1. Carrying Out Currency Exchanges
2. Discounting Commercial Notes and Making Business Loans
3. Offering Savings Deposits
4. Safekeeping of Valuables and Certification of Value
5. Supporting Government Activities with Credit
6. Offering Checking Accounts (Demand Deposits)
7. Offering Trust Services

2.  Services Banks and Many of Their Financial-Service Competitors Began Offering in the Past Cent  ury

1. Granting Consumer Loans
2. Financial Advising
3. Managing Cash
4. Offering Equipment Leasing
5. Making Venture Capital Loans
6. Selling Insurance Policies
7. Selling and Managing Retirement Plans
8. Dealing in Securities: Offering Security Brokerage and Investment Banking Services
9. Offering Mutual Funds, Annuities, and Other Investment Products
10. Offering Merchant Banking Services
11. Offering Risk Management and Hedging Services
C. Convenience: The Sum Total of All Banking and Financial Services
V. Key Trends Affecting All Financial-Service Firms—Crises, Reform, and Change

1. Service Proliferation
2. Rising Competition
3.  Government Deregulation and then Reregulation
4.  Crisis, Reform, and Change in Banking and Financial Services
5.  An Increasingly Interest-Sensitive Mix of Funds
6.  Technological Change and Automation
7.  Consolidation and Geographic Expansion
8.  Convergence
9.  Globalization

VI. The Plan of This Book
VII. Summary

 

Concept Checks

 
1-1.   What is a bank? How does a bank differ from most other financial-service providers?
 
A bank can be defined by what economic function it performs, what services it offers its customers, or the legal basis for its existence. Historically, banks have been offering a great range of financial services such as checking and debit accounts, credit cards, and savings plans. However, banks today are rapidly expanding their service offerings to include investment banking (security underwriting), insurance protection, financial planning, advisory service for merging companies, risk-management services, and numerous other innovative financial products. O ther financial service providers offer some of the similar financial services offered by a bank but not all of them within one institution. Although, many financial-service institutions are trying to be as similar to banks as possible in the services they offer. Not only financial service industries but several industrial companies have stepped forward in recent decades to control a bank or a banklike firms.