Financial Markets, Banking, and Monetary Policy

CHAPTER 17 Depository Institutions

WHAT YOU WILL LEARN IN THIS CHAPTER

• How the size of commercial banks compares with savings institutions and credit unions and how they differ in the services that they provide.
• Why there are so many commercial banks in the United States and just a few large banks in other countries.
• Why cost considerations do not seem to greatly favor large institutions over smaller ones.
• Why interbank connections are important for the U.S. banking system.
• What is meant by relationship banking and bundling of services.
• How deposit insurance affects our depository system today.
• How the safety net provided to commercial banks and other depository institutions creates moral hazard incentives.
• How regulation and supervision seeks to counter moral hazard.
• Why so much emphasis by regulators around the world has been given to capital standards for depository institutions.

BACKGROUND

As you drive through some communities, there seem to be offices of depository institutions on virtually every corner. Some are branches of large, global banks; others are local institutions with the name “bank” in their title; and still others are credit unions. Are they all doing the same thing? Is their customer base the same? Do they compete with each other? Why do small banks seem to have no difficulty coexisting with mega-banks?

Further, have you wondered whether there is any longer a need for such bricks and mortar, or whether the services of depository institutions can be conducted ...