商业银行管理彼得S.罗斯第八版课后答案chapter-01

商业银行管理彼得S.罗斯第八版课后答案chapter_01CHAPTER1ANOVERVIEWOFBANKSANDTHEFINANCIAL-SERVICESSECTORGoalofThisChapter:Inthischapteryouwilllearnaboutthemanyrolesfinancialserviceprovidersplayintheeconomytoday.Youwillexaminehowandwhythebankingindustryandthefinancialservicesmarketplaceasawholeisrapidlychanging,becomingnewanddifferentaswemoveforwardintothefuture.Youwillalsolearnaboutnewandoldservicesofferedtothepublic.KeyTopicsinThisChapterPowerfulForcesReshapingtheIndustryWhatisaBank?The Financial System and Competing InstitutionsOldandNewServicesOfferedtothePublicKeyTrendsAffectingAllFinancial-ServiceFirmsAppendix:CareerOpportunitiesinFinancialServicesChapterOutlineIntroduction:PowerfulForcesReshapingtheIndustryWhatIsaBank?DefinedbytheFunctionsItServesandtheRolesItPlay:BanksandtheirPrincipalCompetitorsLegalBasisofaBankDefinedbytheGovernmentAgencyThatInsuresItsDepositsTheFinancialSystemandCompetingFinancial-ServiceInstitutionsSavingsAssociationsCreditUnionsMoneyMarketFundsMutualFundsHedgeFundsSecurityBrokersandDealersG.InvestmentBankersH.FinanceCompaniesI.FinancialHoldingCompaniesJ.LifeandProperty/CasualtyInsuranceCompaniesT he Services Banks and Many of Their CompetitorsOfferthePublicServicesBanksHaveOfferedThroughoutHistory1.CarryingOutCurrencyExchanges2.DiscountingCommercialNotesandMakingBusinessLoans3.OfferingSavingsDeposits4.SafekeepingofValuablesandCertificationofValue5.SupportingGovernmentActivitieswithCredit6.OfferingCheckingAccounts(DemandDeposits)7.OfferingTrustServicesServicesBanksandManyofTheirFinancial-ServiceCompetitorsHaveOfferedMoreRecently1.GrantingConsumerLoans2.FinancialAdvising3.ManagingCash4.OfferingEquipmentLeasing5.MakingVentureCapitalLoans6.SellingInsurancePolicies7.SellingRetirementPlansDealinginSecurities:OfferingSecurityBrokerageandInvestmentBankingServicesOfferingSecurityUnderwritingOfferingMutualFundsandAnnuitiesOfferingMerchantBankingServicesOfferingRiskManagementandHedgingServicesKeyTrendsAffectingAllFinancial-ServiceFirmsServiceProliferationRisingCompetitionGovernmentDeregulationAnIncreasinglyInterest-SensitiveMixofFundsTechnologicalChangeandAutomationConsolidationandGeographicExpansionConvergenceGlobalizationThePlanofThisBookSummaryConceptChecks1-1.Whatisabank?Howdoesabankdifferfrommostotherfinancial-serviceproviders?Abankshouldbedefinedbywhatitdoes;inthiscase,banksaregenerallythosefinancialinstitutionsofferingthewidestrangeoffinancialservices.Otherfinancialserviceprovidersoffersomeofthefinancialservicesofferedbyabank,butnotallofthemwithinoneinstitution.1-2.UnderU.S.lawwhatmustacorporationdotoqualifyandberegulatedasacommercialbank?UnderU.S.law,commercialbanksmustoffertwoessentialservicestoqualifyasbanksforpurposesofregulationandtaxation,demand(checkable)depositsandcommercialloans.Morerecently,CongressdefinedabankasanyinstitutionthatcouldqualifyfordepositinsuranceadministeredbytheFDIC.1-3.Whyaresomebanksreachingouttobecomeone-stopfinancialserviceconglomerates?Isthisagoodideainyouropinion?Therearetworeasonsthatbanksareincreasinglybecomingone-stopfinancialserviceconglomerates.Thefirstreasonistheincreasedcompetitionfromothertypesoffinancialinstitutionsandtheerosionofbanks’traditionalserviceareas.ThesecondreasonistheFinancialServicesModernizationActwhichhasallowedbankstoexpandtheirroletobefullserviceproviders.1-4.Whichbusinessesarebanking’sclosestandtoughestcompetitors?Whatservicesdotheyofferthatcompetedirectlywithbanks’services?Among a bank’s closest competitors are savingsassociations,creditunions,moneymarketfunds,mutualfunds,hedgefunds,securitybrokersanddealers,investmentbanks,financecompanies,financialholdingcompanies,andlifeandproperty-casualtyinsurancecompanies.Allofthesefinancialserviceprovidersareconvergingandembracingeachother’sinnovations. The Financial Services Modernization Act hasallowedmanyofthesefinancialserviceproviderstoofferthepublicone-stopshoppingforfinancialservices.1-5.Whatishappeningtobanking’sshareofthefinancialmarketplaceandwhy?Whatkindofbankingandfinancialsystemdoyouforeseeforthefutureifpresenttrendscontinue?TheFinancialServicesModernizationActof1999allowedmanyofthebanks’closestcompetitorstoofferawidearrayoffinancial services thereby taking away market share “traditional”banks.Banksandtheirclosestcompetitorsareconvergingintoone-stopshoppingforfinancialservicesandthistrendshouldcontinueinthefuture1-6.Whatdifferentkindsofservicesdobanksofferthepublictoday?Whatservicesdotheirclosestcompetitorsoffer?Banksofferthewidestrangeofservicesofanyfinancialinstitution.Theyofferthriftdepositstoencouragesavingandcheckable(demand)depositstoprovideameansofpaymentforpurchasesofgoodsandservices.Theyalsoprovidecreditthroughdirectloans,bydiscountingthenotesthatbusinesscustomershold,andbyissuingcreditguarantees.Additionally,theymakeloanstoconsumersforpurchasesofdurablegoods,suchasautomobiles,andforhomeimprovements,etc.Banksalsomanagethepropertyofcustomersundertrustagreementsandmanagethecashpositionsoftheirbusinesscustomers.Theypurchaseandleaseequipmenttocustomersasanalternativetodirectloans.Manybanksalsoassisttheircustomerswithbuyingandsellingsecuritiesthroughdiscountbrokeragesubsidiaries,theacquisitionandsaleofforeigncurrencies,thesupplyingofventurecapitaltostartnewbusinesses,andthepurchaseofannuitiestosupplyfuturefundingatretirementorforotherlong-termprojectssuchassupportingacollegeeducation.Alloftheseservicesarealsoofferedbytheirclosestcompetitors.Banksandtheirclosestcompetitorsareconvergingandbecomingthefinancialdepartmentstoresofthemodernera.1-7.Whatisafinancialdepartmentstore?Auniversalbank?Whydoyouthinktheseinstitutionshavebecomesoimportantinthemodernfinancialsystem?Financialdepartmentstoreanduniversalbankrefertothesameconcept.Afinancialdepartmentstoreisaninstitutionwherebanking,fiduciary,insurance,andsecuritybrokerageservicesareunifiedunderoneroof.Abankthatoffersalltheseservicesisnormallyreferredtoasauniversalbank.Thesehavebecomeimportantbecauseofconvergenceandchangesinregulationsthathaveallowedfinancialserviceproviderstoofferallservicesunderoneroof1-8.Whydobanksandotherfinancialintermediariesexistinmodernsociety,accordingtothetheoryoffinance?Therearemultipleapproachestoansweringthisquestion.Thetraditionalviewofbanksasfinancialintermediariesseesthemassimultaneouslyfulfillingthefinancial-serviceneedsofsavers(surplus-spendingunits)andborrowers(deficit-spendingunits),providingbothasupplyofcreditandasupplyofliquidassets.Anewerviewseesbanksasdelegatedmonitorswhoassessandevaluateborrowersonbehalfoftheirdepositorsandearnfeesforsupplyingmonitoringservices.Banksalsohavebeenviewedinrecenttheoryassuppliersofliquidityandtransactionsservicesthatreducecostsfortheircustomersand,throughdiversification,reducerisk.Banksarealsocriticalinthepaymentsystemforgoodsandservicesandhaveplayedanincreasingly important role as a guarantor and a riskmanagementroleforcustomers.1-9.Howhavebankingandthefinancialservicesmarketchangedinrecentyears?Whatpowerfulforcesareshapingfinancialmarketsandinstitutionstoday?Whichoftheseforcesdoyouthinkwillcontinueintothefuture?Bankingisbecomingamorevolatileindustrydue,inpart,toderegulationwhichhasopenedupindividualbankstothe fullforceofthefinancialmarketplace.Atthesametimethenumberandvarietyofbankingserviceshasincreasedgreatlyduetothepressureofintensifyingcompetitionfromnonbankfinancial-serviceprovidersandchangingpublicdemandformoreconvenientlyandreliablyprovidedservices.Addingtotheintensityofcompetition,foreignbankshaveenjoyedsuccessintheireffortstoentercountriesoverseasandattractawayprofitabledomesticbusinessandhouseholdaccounts.1-10.Canyouexplainwhymanyoftheforcesyounamedintheanswertothepreviousquestionhaveledtosignificantproblemsforthemanagementofbanksandotherfinancialfirmsandtheirstockholders?Thenetresultofrecentchangesinbankingandthefinancialservicesmarkethasbeentoputgreaterpressureupontheirearnings,resultinginmorevolatilereturnstostockholdersandanincreasedbankfailurerates.Someexpertsseebanks'roleandmarketshareshrinkingduetorestrictivegovernmentregulationsandintensifyingcompetition.Institutionshavealsobecomemoreinnovativeintheirserviceofferingsandinfindingnewsourcesoffunding,suchasoff-balance-sheettransactions.Theincreasedriskfacedbyinstitutionstoday,therefore,hasforcedmanagerstomoreaggressivelyutilizeawidearrayoftoolsandtechniquestoimproveandstabilizetheirearningsstreamsandmanagethevariousriskstheyface.1-11.Whatdoyouthinkthefinancialservicesindustrywilllooklike20yearsfromnow?Whataretheimplicationsofyourprojectionsforitsmanagementtoday? There appears to be a trend toward continuingconsolidationandconvergence.Therearelikelytobefewerfinancialserviceprovidersinthefutureandmanyofthesewillbeverylargeandprovideabroadrangeoffinancialservicesunderoneroof.Inaddition,globalexpansionwillcontinueandwillbecriticaltothesurvivalofmanyfinancialservice providers.Managementoffinancialserviceproviderswillhavetobemoretechnologicallyastuteandbeabletomakeamorediversesetofdecisionsincludingdecisionsaboutmergers,acquisitionsandglobalexpansionaswellasnewservicestoaddtothefirm.ProblemsandProjectsYouhavejustbeenhiredasthemarketingofficerforthenew First National Bank of Vincent, a suburban bankinginstitutionthatwillsoonbeservingalocalcommunityof120,000people.Thetownisadjacenttoamajormetropolitanareawithatotalpopulationofwellover1million.Openingdayforthenewlycharteredbankisjusttwomonthsaway,andthepresidentandtheboardofdirectorsareconcernedthatthenewbankmaynotbeabletoattractenoughdepositorsandgood-qualityloancustomerstomeetitsgrowthandprofitprojections.Thereare18otherfinancial-servicecompetitorsintown,includingtwocreditunions,threefinancecompanies,fourinsuranceagencies,andtwosecuritybrokeroffices.Yourtaskistorecommendthevariousservicesthebankshouldofferinitiallytobuildupanadequatecustomerbase.Youareaskedtodothefollowing:a.Makealistofalltheservicesthenewbankcouldoffer,accordingtocurrentregulations.Listthetypeofinformationyouwillneedaboutthelocalcommunitytohelpyoudecidewhichofthepossibleservicesarelikelytohavesufficientdemandtomakethemprofitable.Dividethepossibleservicesintotwogroups--thoseyouthinkareessentialtocustomersandshouldbeofferedbeginningwithopeningday,andthosethatcanbeofferedlaterasthebankgrows.Brieflydescribethekindofadvertisingcampaignyouwouldliketoruntohelpthepublicseehowyourbankisdifferentfromalltheotherfinancialserviceprovidersinthelocalarea.Whichservicesofferedbythenonblankserviceproviderswouldbeofmostconcerntothenewbank’smanagement?Bankscanoffer,iftheychoose,awidevarietyoffinancialservicestoday.Theseservicesarelistedbelow.However,unlesstheyareaffiliatedwithalargerbankholdingcompanyandcanoffersomeoftheseservicesthroughthatcompany,itmaybemorelimitedinwhatitcanoffer.Regular Checking Accounts Management ServicesNOWAccountsLettersofCreditPassbook Savings Deposits Business Inventory CertificatesofDepositAsset-BasedCommercialLoansMoneyMarketDepositsDiscountingofCommercialPaperAutomobileLoansPlantandEquipmentLoansRetirementSavingsPlansVentureCapitalLoansNonautoInstallmentLoanstoIndividualsResidentialRealEstateLoansLeasingPlansforBusinessPropertyandEquipmentHomeImprovementLoansSecurityDealingandUnderwritingPersonalTrustManagementServicesDiscountSecurityBrokerageCommercialTrustServicesInstitutionalTrustServicesForeignCurrencyTradingandExchangePersonalFinancialAdvisingPersonalCash-ManagementServicesInsurancePolicySales(MainlyCredit-Life)InsuranceToday(ExceptinSomeStates))StandbyCreditGuaranteesAcceptanceFinancingTohelpthenewbankdecidewhichservicestoofferitwouldbehelpfultogatherinformationaboutsomeofthefollowingitemsinthelocalcommunity:SchoolEnrollmentsandGrowthinSchoolEnrollmentsEstimatedValueofResidentialandCommercialPropertyRetailSalesPercentageofHomeOwnershipAmongResidentsintheAreaNumberandSize(inSalesandWorkForce)ofLocalBusinessEstablishmentsMajorPopulationLocations(i.e.,MajorSubdivisions,etc.)andAnyProjectedGrowthAreasPopulationDemographics(i.e.,AgeDistributionoftheArea)ProjectedGrowthAreasofIndustriesintheAreaEssentialservicesthebankwouldprobablywanttoofferrightfromthebeginningincludes:RegularCheckingAccountsHomeImprovementLoansAutomobileandotherConsumer-typeMoneyMarketDepositAccountsInstallmentLoansRetirementSavingsPlansNOWAccountsBusinessInventoryLoansPassbookSavingsDepositsDiscountingofHigh-QualityCommercialNotesResidentialRealEstateLoansCertificatesofDepositAsthebankgrows,opportunitiesfortheprofitablesaleofadditionalservicesusuallyincrease,especiallyfortrustservicesforindividualsandsmallerbusinessesandpersonalfinancialadvisingaswellassomecommercial(plantandequipment)loansandleases.Furthergrowthmayresultintheexpansionofcommercialtrustservicesaswellasawideningvarietyofcommercialloansandcreditguarantees.Thebankwouldwantto developanadvertisingcampaignthatsendsamessagetopotentialcustomersthatthenewbankis,indeed,differentfromitscompetitors.Smallbanksoftenhavetheadvantageofofferinghighlypersonalizedservicesinwhichtheircustomersareknownandrecognizedandservicesaretailoredtoeachindividualcustomer'sspecialfinancialneeds.Quality and reliability of banking service are often moreimportanttoindividualcustomersthanisprice.Anewbankmusttrytosellprospectivecustomers,mostofwho willcomefromotherbanksinthearea,onpersonalizedservices,quality,andreliability-allthreeofwhichshouldbeemphasizedinitsadvertisingprogram.LeadingmoneycenterbanksintheUnitedStateshaveacceleratedtheirinvestmentbankingactivitiesallovertheglobeinrecentyears,purchasingcorporatedebtsecuritiesandstockfromtheirbusinesscustomersandresellingthosesecuritiestoinvestorsintheopenmarket.Isthisadesirablemovebythesebankingorganizationsfromaprofitstandpoint?Fromariskstandpoint?Fromthepublicinterestpointofview?Howwouldyouresearchtheirquestion?Ifyouweremanagingacorporationthathadplacedlargedepositswithabankengagedinsuchactivities,wouldyoubeconcernedabouttherisktoyourcompany'sfunds?Whatcouldyoudotobettersafeguardthosefunds?Inthe1970'sandearly1980'sinvestmentbankingwassoprofitable that commercial bankers were lured into theinvestmentbankingbusinesslargelybecauseofitsgreaterprofitpotential than possessed by more traditional commercialbankingactivities.Laterforeignbanks,particularlytheBritishandJapanesebankingfirms,beganto attractawaylargecorporatecustomersfromU.S.banks,whowererestrainedbyregulationfromofferingmanyinvestmentbankingservices.Thus,U.S.banksranintoseveredifficultyinsimplytryingtoholdontotheirtraditionalcorporatecreditanddepositaccountsbecausetheycouldnotcompeteservice-wiseintheinvestmentbankingfield.Today,banksareallowedtounderwritesecuritiesthrougheitherasubsidiaryorthroughaholdingcompanystructure.ThischangeoccurredaspartoftheGramm-Leach-BlileyAct(FinancialServicesModernizationAct).Unfortunately,ifinvestmentbankingismoreprofitablethantraditionalbankingproductlines,itisalsomorerisky,consistentwiththebasictenetoffinancethatriskandreturnaredirectlyrelated.ThatiswhytheFederalReserveBoardhasplacedsuchstrictlimitsonthetypeoforganizationthatcanoffertheseservices.Currently,theunderwritingofmostcorporatesecuritiesmustbedonethroughasubsidiaryorasaseparatepartoftheholdingcompanysothat,intheoryatleast,thebankisnotresponsibleforanylossesincurred.Forthisreasontheremaybelittlereasonfordepositors(includinglargecorporatedepositors)tobeconcernedaboutriskexposurefrominvestmentbanking.Moreover,theabilitytooffersuchservicesmaymakeU.S.banksmoreviableinthelongrunwhichhelpstheircorporatecustomerswhodependuponthemforcredit.Ontheotherhand,opponentsofinvestmentbankingpowersforbankoperationsinsidetheU.S.havesomereasonableconcernsthatmustbeaddressed.Thereare,forexample,possible conflicts of interest. Information gathered in theinvestmentbankingdivisioncouldbeusedtothedetrimentofcustomerspurchasingotherbankservices. For example,acustomerseekingaloanmaybetoldthatheorshemustbuysecuritiesfromthebank'sinvestmentbankingdivisioninordertoreceivealoan.Moreover,bankscouldgaineffectivecontroloversomenonblankindustrialcorporationswhichmightsubjectthemtoaddedriskexposureandplaceindustrialfirmsnotalliedwithbanksatacompetitivedisadvantage.AsaresulttheGramm-Leach-BlileyActhasbuiltinsomeprotectionstopreventthisfromhappening.Thetermbankhasbeenappliedbroadlyovertheyearstoincludeadiversesetoffinancial-serviceinstitutions,whichofferdifferentfinancialservicepackages.Identifyasmanyofthedifferentkindsof“banks”asyoucan.Howdothe“banks”youhaveidentifiedcomparetothelargestbankinggroupofall–thecommercialbanks?Whydoyouthinksomanydifferentfinancialfirmshavebeencalledbanks?Howmightthisterminologicalconfusionaffectfinancial-servicecustomers?Thegeneralpublictendstoclassifyanythingasabankthatofferssomesortoffinancialservice,especiallydepositandloanservices.Otherinstitutionsthatareoftenreferredtoasabankwithoutbeingonearesavingsassociations,creditunions,moneymarketfunds,mutualfunds,hedgefunds,securitybrokersanddealers,investmentbanks,financecompanies,financialholdingcompaniesandlifeandproperty/casualtyinsurancecompanies.Alloftheseinstitutionsoffersomeoftheservicesthatacommercialbankoffers,butgenerallynottheentirescopeofservices.Sinceprovidersoffinancialservicesarenormallycalledbanksbythegeneralpublictheyareabletotakeawaybusinessfromtraditionalbanksanditisofutmostimportanceforcommercialbankstoclarifytheiruniquepositionamongfinancialservicesproviders.Whatadvantagescanyouseetobanksaffiliatingwithinsurancecompanies?Howmightsuchanaffiliationbenefitabank?Aninsurer?Canyouidentifyanypossibledisadvantagestosuchanaffiliation?Canyouciteanyrealworldexamplesofbank-insureraffiliations?Howwelldotheyappeartohaveworkedoutinpractice?BeforeGlass-Steagallbanksusedtosellinsuranceservicestotheircustomersonaregularbasis.inparticular,bankswouldselllifeinsurancecompaniestoloancustomerstoensurerepaymentoftheloanincaseofdeathordisablement.Thesereasonsstillexisttodayandtherighttosellinsurancestocustomersagainbenefits banks in allowing them to offer their customerscompletefinancialpackagesfromfinancingthehomeorcartoinsureit,fromgivinginvestmentadvicetosellinglifeinsurancepoliciesandannuitiesforretire