U.S. Banking Industry



U.S. Banking Industry

Introduction

Bank or banking system set of institutions that enable the development of all transactions between individuals, companies and organizations that involve the use of money. Within the banking system can distinguish between public banks and private banks, which in turn may be commercial, industrial or mixed business. The private commercial banks are primarily concerned with providing loans to private individuals. Industrial or business invests its assets in industrial firms, by acquiring and directing. Mixed private banking combines both types of activities. In the nineteenth century were very common industrial banks, although they have been losing strength during the twentieth century in favour of mixed banking. Within the public banks should note, first, the issuing bank or central bank, which has a monopoly on printing money and usually belong to the State. Also include savings institutions and within them, in Spain, the savings banks (Schwartz, 1998).

This paper will present the analysis on United States' banking industry.

Current Performance

Commercial Banking industry revenue is expected to grow at an average annual rate of 2.0% over the five years to 2011, despite a projected 2.6% revenue contraction in 2011, bringing the industry total to $601.8 billion. However, this revenue growth reflects government stimulus more than organic growth and hides the impact of the 2008 sub-prime crisis on the banking sector. Federal Deposit Insurance Corporation (FDIC) numbers show huge mortgage loan losses cut industry profit (earnings before taxes) 9.8% annually to $100.7 billion in 2011. The industry bottom line, or net income, declined at a 9.6% annual rate over the last five years, with the industry losing an astounding $12.3 billion at the height of the mortgage crisis in 2008 (Macesich ,2011). As many as 324 banks failed over the last five years, while an average of 18.2% of commercial banks were unprofitable on a yearly basis during the same period.

Commercial banks earn the majority of their revenue through the interest spread between customer deposits and lent money. Banks accept deposits and place them in savings accounts and products like certificates of deposit where the money cannot be withdrawn for a certain period. Banks pay interest to the depositor on this money and loan out these deposits at a higher interest rate as mortgages, auto loans, personal loans or small business loans. Revenue is generally calculated as the spread between interest-bearing accounts and loans, combined with non-interest revenue, such as debit card and overdraft fees. The primary factors driving revenue growth are the prime rate (minimum bank loan interest rate), and retail and commercial loan demand represented by aggregate household debt and corporate profit (Schuler, 2001).

Obstacles arise despite recovery

The government spent hundreds of billions of dollars to prop up the Commercial Banking industry and the economy during the recession. From late 2009 to early 2011, those efforts seemed to pay off, but the industry is not out of the woods yet. The consumer credit market is thawing slower than anticipated. The Federal Reserve is between a rock and a hard place, having ...