Establishing New Banks, Branches & ATMs

Establishing New Banks, Branches & ATMs

•      Brings added prestige

•      More Costly

•      Subject to stricter regulatory framework

•      Larger deposits/loan

•      Technical assistance from national bank authorities

•      Part of Federal Reserve System

•      Federal banking rules can pre-empt (prevent) state laws

State Bank

•      Easier to secure state charter

•      Less costly

•      Not part of federal reserve system

•      Subject to state law

•      Customized service

Factors affecting regulatory decisions regarding Chartering a New Bank

•      Target market (service area)

•      Competing financial institutions within the service area

•      Sizes of business in the service area

•      Level of competition

•      Traffic pattern

•      Population density, growth, income, age, education, occupation etc.

•      Financial history of the service area

•      Ownership of the stocks (capital)

•      Experience of the organizers

•       Projected deposits, loans, revenues and expenses (quality of the projection)

Chartering a New Bank

•      External Factors

•      Internal Factors

External Factors

•      Level & Growth of Economic Activity

•      Need for a New Financial Institution

•      Level of Competition

Internal Factors

•      Qualification & Quality of Management

•      Experience

•      Contacts

Factors Affecting Sites for Full-Service Branches

•      Traffic count

•      Business Activities

•      Population age, density and growth

•       Population per branch

•      Financial-service competitor

Establishing a Full-Service Branch
(Capital Budgeting Decision)

•      Expected Rate of Return

– Compare the expected rate of return of  the branch with the required/acceptable rate of return or with cost of capital of the bank

•      Geographic Diversification

– New branch increases or decreases the

return and risk of the bank

Decision to Install a New ATM
(Capital Budgeting Decision)

•      NPV of New ATM =

Present value of the stream of cash savings from new ATM discounted at required return or cost of capital

Minus (-)

Initial cash outlay for the new ATM

•      Install ATM  if the NPV is Positive