The Organization & Structure of Banks & Their Industry
Organizational Forms of Banks
n The arrangement of personnel & departments within a bank to produce & deliver its services. A bank with heavy involvement in consumer loans & deposits is called “Retail Bank”. The bank which concentrates mainly upon serving commercial customers & making large corporate loans is called “Wholesale Institution”.
Differences between Large & Small Banks
n Small Banks: The service operations of small banks are usually monitored by a Cashier & Auditor working in the accounting division & by Vice-Presidents heading up the bank’s loan-fund raising, marketing & trust departments. These officers reports to the Senior Executives of the bank, consisting of the board Chairman; the President, who usually runs the bank from day to day; & Senior Vice Presidents, who are responsible for long-range planning & for assisting heads of the various departments in solving their most pressing problems. Senior management, in turn, reports periodically to the members of the Board of Directors that is selected by the Stockholders.
Differences between Large & Small Banks—Contd
n Large Banks: This bank is owned & controlled by a holding company whose stockholders elect a Board of Directors to oversee the bank & nonbank firms allied with the same holding company. The largest institutions serve many different markets with many different services, they are better diversified – both geographically & product line – to withstand the risks of a fluctuating economy.
Unit Banking Organization
n The oldest kinds of banking, offer all of their services from one office, though a small number of services [taking deposits, cashing checks ] may be offered from limited-service facilities such as:
• Drive-up windows.
• Automated teller machine (ATM)
• Retail store point-of-sale terminals.
n Reasons for the growth of Unit banking system are:
• Rapid formation of new banks.
• On-line banking.
• Megamergers.
Branch Banking
n It serves a rapidly growing region & finds itself under pressure either to follow its business & household customers as they move into new areas or lose them to more conveniently located competitors.
n Senior management of a branch banking organization is usually located at home office, though each full-service branch has its own management team with limited authority to make decisions on customer loan applications & other facets of daily operations.
q Reasons for the growth of Branch Banking:
q Shifting of population from cities to suburban communities.
q Bank failures causes healthier banks to take over sick ones & convert them into branch offices.
q Growth of business increases the credit needs of rapidly growing corporations.
q Advantages of Branch Banking/Argument for Branch Banking:
q Greater operating efficiency.
q Increases the availability & convenience of services to customers.
q Stimulate faster economic growth.
q Fewer bank failures because a branch bank is less dependent on the volume of business from single industry or local market area.
Branch Banking—-Contd
n Argument Against Branch Banking:
– Drives out small competitors.
– Leaving the customer with fewer sources of banking services.
– Leads to higher service fees.
– Drains scarce capital away from local communities toward the largest cities.
– Slowing local economic development.
– Loans & deposits interest rates increases through mergers.
Bank Holding Company Organizations
n A bank holding company is simply a corporation chartered for the purpose of holding the stock of at least one bank.. Banks acquired by holding company are identified as Affiliated Bank. Any company has control over a bank or over any company if—
(A)The company directly or indirectly or acting through one or more other persons owns, controls, or has power to vote 25 percent or more of any class of voting securities of the bank or company;
(B)The company controls in any manner the election of at least two directors of at least one bank or company; or
(C)The Board determines, after notice and opportunity for hearing, that the company directly or indirectly exercises a controlling influence over the management or policies of the bank or company.
(D) Prior approval taken from Fed.
Types of Bank Holding Company