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institutions and markets is the expansion of activities across national boundaries. Technology has made it possible to conduct business around the world with relative ease and minimal cost. Producers recognize that export markets are as important as domestic markets, and that the range of competitors includes both domestic and foreign operations.
U.S. commercial banks now accept deposits, make loans, provide letters of credit, trade bonds and foreign exchange, and underwrite debt and equity securities in dollars and other currencies. With the globalization of financial markets, all firms compete directly with other major commercial and investment banks throughout the world. Foreign banks offer the same products and services denominated in their domestic currencies and in U.S. dollars. Still, it was not always this way.
U.S. banks, although a dominant player in some world markets, have not been considered large by international standards
Restrictive branching laws, Restrictions on the types of activities U.S.
banks could engage in, and Other regulatory factors generally meant that
U.S. banks, although a dominant player in some world markets, have not been considered large by international standards.
Rank 1 2 3 4 5 6 7 8 9 10 17 26 Company Name Bank of Tokyo-Mitsubishi Ltd., Tokyo, Japan Deutsche Bank AG, Frankfurt, Germany Credit Agricole Mutual, Paris, France (2) Credit Suisse Group, Zurich, Switzerland (1) Dai-Ichi Kangyo Bank Ltd., Tokyo, Japan Fuji Bank Ltd., Tokyo, Japan Sanwa Bank Ltd., Osaka, Japan Sumitomo Bank Ltd., Osaka, Japan Sakura Bank Ltd., Tokyo, Japan HSBC Holdings, Plc., London, United Kingdom Chase Manhattan Corp., New York, United States Citicorp, New York, United States (b) 12/31/1996 $648,161.00 575,072.00 479,963.00 463,751.40 434,115.00 432,992.00 427,689.00 426,103.00 423,017.00 404,979.00 333,777.00 278,941.00
By the end of the 20th century, many factors had changed in the U.S. banking system.
The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 effectively eliminated interstate branching restrictions in the U.S. such that: by early 1994, there were 10 U.S. banks with 30 interstate branches. by June 2001, there were 288 U.S. banks with 19,298 interstate branches. U.S. banks were also hampered in their ability to compete internationally by the Glass-Steagall Act, which effectively separated commercial banking from investment banking. As such, U.S. commercial banks essentially provided two products: loans and FDIC-insured deposits. In November 1999, the U.S. Congress passed the GrammLeach-Bliley Act, which allowed U.S. banks to fully compete with the largest global diversified financial companies by offering the same broad range of products. The Gramm-Leach-Bliley Act of 1999 repealed restrictions on banks affiliating with securities firms and modified portions of the Bank Holding Company Act to allow affiliations between banks and insurance underwriters.
By the end of 2000, the largest banking company in the world was Citigroup at just under one-trillion dollars and three of the largest ten banking companies in the world were U.S. banks.
World Rankings of Financial Companies (by Assets) after Mergers, the full enactment of Riegle-Neal Interstate Banking and Branching Efficiency Act and Gramm-Leach-Bliley Act
2000 Rank 1 2 3 4 5 6 7 8 9 10 Company Name Citigroup Inc , New York Deutsche Bank , Frankfurt, Germany Bank Of Tokyo-Mitsubishi Ltd. , Tokyo J.P. Morgan Chase & Co. , New York UBS, Zurich HSBCHoldings , London BNP Paribas , Paris Bank of America Corp. , Charlotte, N.C. Credit Suisse Group , Zurich Fuji Bank Ltd. , Tokyo Total Assets 2000 $902,210.00 872,626.68 720,808.94 715,348.00 673,705.58 673,475.21 651,431.86 642,191.00 612,098.13 557,111.70 Total Assets 1999 $716,937.00 829,155.67 638,926.83 406,105.00 615,324.33 600,680.41 702,370.25 632,574.00 451,062.77 467,410.23 % Change 25.84% 5.24 12.82 76.15 9.49 12.12 -7.25 1.52 35.7 19.19
The merger between Citicorp and Travelers created Citigroup, the first diversified financial services company in the U.S.
The merger, however, was not completely
permissible at the time it was approved under provisions of the Glass-Steagall Act.
The passage of the Gramm-Leach-Bliley Act, made this merger permissible and thereby allowed Citigroup to legally be the worlds largest banking company. Citigroup formed a financial holding company under the provisions of the Gramm-Leach-Bliley Act and became one of the first integrated financial services companies engaged in investment services, asset management, life insurance and property casualty insurance, and consumer lending.
Its operating companies include Salomon Smith Barney, Salomon Smith Barney Asset Management, Travelers Life & Annuity, Primerica Financial Services, Travelers Property Casualty Corp., and Commercial Credit.
Today, the product offerings of Citigroup are similar to that of Deutsche Bank in Germany
Prior to the merger between Citibank and Travelers,
however, Citibanks product line was more limited. Outside the U.S., Citibank was able to offer a diversified set of products using an Edge Act corporation.
Edge Act corporations are domestic subsidiaries of banking organizations chartered by the Federal Reserve.
All Edges are located in the United States and may be established by U.S. or foreign banks and bank holding companies, but are limited to activities involving foreign customers. They can establish overseas branches and international banking facilities (IBFs) and own foreign subsidiaries.
Foreign banks operating through their American banking offices have also aggressively pursued U.S. business.
95.0%
45.0% 40.0% 35.0%
30.0%
25.0% 20.0% 15.0% 10.0% 5.0% 0.0%
60.0%
55.0% 50.0%
100.0%
50.0%
The growth in market share of U.S. offices of foreign banks in total loans and business loans.
100.0% 95.0% 50.0% 90.0% 85.0% 80.0% 75.0% 70.0% 65.0% 60.0% 55.0% 50.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%
45.0%
trading of financial instruments; foreign exchange activities; underwriting new debt and equity issues; investment management, insurance; as well as extension of credit and deposit gathering
banking in most of continental Europe. Universal banks engage in everything from insurance to investment banking and retail banking
similar to U.S. banks prior to the enactment of the Banking Act of 1933 and Glass-Steagall provisions and now post the passage of the Gramm-Leach-Bliley Act of 1999
Three events changed the historical development of banking in the united states.
1.
The first was the stock market crash of 1929 and the following Great Depression.
Many people blamed the banks and the universal banking activities for the problems although there is no strong evidence to link the speculative activities of banks with the crash.
2.
3.
The second was the enactment of the Banking Act of 1933 and the Glass-Steagall provision, which separated commercial banking from investment banking activities. The third was the rising importance of the federal government in financial markets.
Prior to these events, the U.S. banking system operated more of less under a universal banking system.
broader base of activities and generate more revenues by offering a bundle of products. Diversification, in turn, reduces risk.
insurance companies, investment banks and other suppliers of financial services are moving toward building financial conglomerates
allows U.S. banks to operate in the business of commercial banking, investment banking, and insurance.
Although there are many restrictions, U.S. banks are allowed to compete with foreign banks on an equal footing for the first time since the passage of the Glass-Steagall Act,
to coerce a corporation into using its underwriting services or buy insurance from its subsidiary by threatening to cut off credit facilities. It could force a borrower in financial difficulties to issue risky securities in order to pay off loans. A universal bank could also abuse confidential information supplied by a company issuing securities as well.
One area of the new GLB Act that has received significant attention is that of privacy protection