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1、CHAPTER 4 CREATING AND MANAGING SERVICE OUTLETS:NEW CHARTERS,BRANCHES,AND ELECTRONIC FACILITIES Goal of This Chapter:The purpose of this chapter is to learn how new banks are chartered by state and federal authorities in the United States,to determine what makes a good site for a new branch office,t
2、o recognize how the role of branch offices is changing,and to explore the advantages and disadvantages of automated banking facilities.Key Topics in This Chapter Chartering New Financial Service Institutions Performance of New Banks Establishing Full Service Branches In-Store Branching Establishing
3、Limited Service Facilities ATMs and Telephone Centers The Internet and Online Banking Chapter Outline I.Introduction A.The Importance of Convenience and Timely Access to Customers B.Service Options Available Today 1.Chartering New(De Novo)Financial Institutions 2.Establishing New Full-Service Branch
4、es 3.Setting Up Limited-Service Facilities II.Chartering a New Bank or Other Financial Service Institutions III.The Bank Chartering Process in the United States A.The Chartering Authorities in the U.S.B.Benefits of Applying for a National Charter C.Benefits of Applying for a State Charter IV.Questio
5、ns Regulators Usually Ask the Organizers of a New Bank V.Factors Weighing on the Decision to Seek a New Bank Charter A.External Factors 1.Level of Economic Activity 2.Growth of Local Economic Activity 3.The Need for a New Bank 4.Strength and Character of Local Competition in Supplying Financial Serv
6、ices B.Internal Factors 1.Qualifications and Contacts of the Organizers 2.Management Quality 3.Pledging of Capital and Funds to Cover the Cost of Filing a Charter Application and Getting Underway VI.Volume and Characteristics of New Bank Charters A.Numbers of New Charters B.Characteristics of New Ch
7、arter Markets VII.How Well Do New Banks Perform?A.New Bank Financial Performance B.Pro-Competitive Effects on Service Offerings and Service Pricing VIII.Establishing Full-Service Branch Offices:Choosing Locations and Designing New Branches A.Advantages of Full-Service Branches B.Trends in the Design
8、 of New Branches C.Desirable Sites for New Branches D.Expected Rate of Return E.Geographic Diversification F.Branch Regulation G.The Changing Role of Branches H.In-Store Branching IX.Establishing and Monitoring Automated Limited-Service Facilities X.Point-of-Sale Terminals XI.Automated Tellers(ATMs)
9、A.History of ATMs B.ATM Services C.Fee Structures for ATM Usage D.Customer Service Limitations of ATMs E.Example of the ATM Capital-Budgeting Decision XII.Home and Office Online Banking A.Telephone Banking and Call Centers B.Internet Banking 1.Services Provided Through the Internet 2.Challenges in P
10、roviding Internet Services 3.The Net and Customer Privacy and Security XIII.Financial Service Facilities of the Future XIV.Summary of the Chapter Concept Checks 4-1.Why is the physical presence of a bank still important to many bank customers despite recent advances in long-distance communications t
11、echnology?Many customers still prefer the personal attention and personal service that contact with bank employees provides.Moreover,for those services where problems can arise that require detailed information and explanation-for example,when a checking account is overdrawn and checks begin to boun
12、ce-the customer needs quick access and,often,the personal attention to his or her problem on the part of one or more employees.4-2.Why is the creation(chartering)of new banks closely regulated?What about nonblank financial firms?The creation of new banks is regulated to insure the safety and soundne
13、ss of existing banks and to avoid excessive numbers of bank failures.The same arguments are usually made for non-bank financial firms.Financial-Service firms hold the publics savings,are the heart of the payment system and create money.The failure of these firms could disrupt the economy and too man
14、y could mean in excessive growth in the money supply and inflation.4-3.What do you see as the principal benefits and costs of government regulation of the number of financial service charters issued?While control over the entry of new banks may reduce the number of failures,it also limits competitio
15、n,so that the public may receive a smaller volume or lower quality of services at excessive prices.4-4.Who charters new banks in the United States?New thrift institutions?New banks are chartered by the banking commissions of the individual states or,at the federal level,by the Comptroller of the Cur
16、rency.Thrift institutions are chartered by the states or at the federal level by the Office of Thrift Supervision.4-5.What key role does the FDIC play in the chartering process?The FDIC exercises some control over state bank charter activity as well as federal charters because most states insist tha
17、t their new banks qualify for federal deposit insurance before they can open for business.4-6.What are the advantages of having a national bank charter?A state bank charter?The benefits of a national charter are:a.)It brings prestige due to stricter regulations and may help attract more customers b.
18、)In times of trouble the technical assistance given may be better ensuring a better chance of long run survival The benefits of a state charter are:a.)It may be easier and less costly to get a state charter b.)The bank does not have to join the Federal Reserve and therefore avoids buying and holding
19、 low yield stock of the Federal Reserve c.)Many states let a bank lend more to one borrower d.)State chartered banks may be able to make types of loans that a nationally chartered bank cannot 4-7.What kinds of information must the organizers of new national banks provide the Comptroller of the Curre
20、ncy in order to get a charter?Why might this required information be important?The Comptroller of the Currency asks for information on the number of competing banks and bank-like institutions in the service area of the proposed bank.More competitive market situations limit the profit potential and p
21、erhaps the growth potential of a new bank.Also requested is information about shopping centers,retail and wholesale business activity,recent population growth,traffic counts,and personal income levels-all viewed as indicators of potential demand for banking services in the service area of the propos
22、ed new bank.Applicants must also provide background information on the organizers and proposed management of a new bank so the Comptroller can decide if these people are qualified,law-abiding,and trustworthy to manage the publics funds as well as their own.4-8.Why do you think the organizers of a ne
23、w financial firm are usually expected to put together and submit to the chartering authority a detailed business plan,including marketing,management,and financial components?This demonstrates to regulators that the organizers of the bank have the expertise,experience and skills necessary to be succe
24、ssful in managing the new bank.If the organizers of a bank do not know where they are going,they are unlikely to be successful.In addition,it demonstrates whether the organizers of the new bank have a realistic picture of the community they are planning on serving and whether the organizers have a r
25、ealistic view of the profit potential in the new bank.4-9.What are the key factors the organizers of a new financial firm should consider before deciding to seek a charter?While a variety of factors are examined by different business people interested in establishing a new bank,most look at some or
26、all of the following factors.1.External Factors a.The level of local economic activity.b.Growth of local economic activity.c.The need for a new bank.d.The strength and character of local competition in supplying financial services.2.Internal Factors a.Qualifications and contacts of the new banks org
27、anizers.b.Management quality.c.Pledging of capital and funds to cover the cost of filing a charter application and begin operations.4-10.Where are most new banks chartered in the United States?New charters tend to be concentrated in large urban areas where expected rates of return on the organizers
28、investments are likely to be the highest.As the population increases relative to the number of financial firms,the number of new charters increases.The success of local banks already in the area suggests that new financial firms would also be successful.Places where the concentration ratio for new b
29、anks has increased tend to have fewer new bank charters.4-11.How well do most new banks perform for the public and for their owners?Most new banks succeed,especially those whose organizers can bring in new deposits and loan accounts during the first year of the banks operation.Most are profitable wi
30、thin two to three years of opening.There is some evidence that newly charted banks are financially fragile and more prone to failure than existing banks.They appear to be more vulnerable to real estate crises than established banks.New banks tend to under perform their competitors until they have be
31、en around for a while and new banks are more closely supervised than established banks.4-12.Why is the establishment of new branch offices usually favored over the chartering of new financial firms as a vehicle for delivering financial services?The chartering of a new financing corporation is normal
32、ly a lengthy and expensive process,requiring the completion of elaborate federal or state application forms,while the branch application process is normally far simpler and less costly.Moreover,with the increase in the number of failures in recent years regulatory-imposed capital requirements for ne
33、w charters have increased substantially,while new branch offices usually carry significantly lower capital requirements.Moreover,branch offices themselves are often much less elaborate and costly to build and maintain than are the headquarters facility of a new institution where some duplicate facil
34、ities can be eliminated(for example,checking processing,credit analysis,and records departments).4-13.What factors are often considered in evaluating possible sites for new branch offices?Bankers first need to decide the goals and objectives of a new facility.Often this means assessing whether the p
35、roposed new branch is aimed at selling one or more particular services,such as deposits or loans,and also deciding how closely correlated cash flows and returns from the new branch office may be with cash flows and returns from the other facilities operated by the bank.If returns or cash flows throu
36、gh the proposed new institution are negatively correlated or display low positive correlation with the institutions other facilities,they may be able to lower the variance of its returns or cash flows by proceeding to establish the new office.Other considerations revolve around the economic strength
37、 of the proposed branch office site-whether there is adequate traffic volume,large numbers of stores and shops,older or younger age populations who often require slightly different menus of services,recent area population growth,density and income,the occupational and residential makeup of the propo
38、sed new branch area,a large enough population to generate enough customers to breakeven and the number and size of facilities operated by competitors.Generally,for branches designed to attract and hold deposits key factors to consider usually revolve around individual and family incomes,concentratio
39、ns of retail stores and shops,older-than-average residents,and homeowners rather than renters.For branch facilities emphasizing credit services residential areas with substantial new construction activity,heavy traffic flow,and high concentrations of stores and shopping centers are typically desirab
40、le for consumer and retail loan demand,while central city office locations are often chosen as locations for commercial loan facilities.4-14.What changes are occurring in the design of,and the roles played by,branch offices?Please explain why these changes are occurring.Bank branches are increasingl
41、y becoming selling platforms in which more and more fee-based services are attractively and prominently advertised in order to maximize the fee-income generating potential of each branch.Moreover,branches are becoming increasingly automated to reduce personnel and other operating costs and improve s
42、peed,efficiency,and accuracy in handling a growing service volume.Branch design has come to reflect these trends with automated facilities placed at easy access points,along with information booths to speedily direct customers to the service areas they need.Human tellers may be placed deeper inside
43、branch facilities so that customers must pass by other service departments and conspicuous advertising in order to encourage customers to become aware of and avail themselves of other bank services.4-15.What laws and regulations affect the creation of new bank and thrift branches and the closing of
44、existing branches?What advantages and what problems can the closing of a branch office create?The opening of new branch offices must be approved by a banks or thrifts principal federal or state supervisor.Closing a branch office has become much more complicated in recent years as the result of sever
45、al new laws and regulations.For example,the FDIC Improvement Act requires 90 days advance notice of branch closings to both customers and the principal supervisory agency and a posting on the branch site at least 30 days prior to closing.Banks and thrifts must also make an affirmative effort to reac
46、h all segments of their communities without discrimination under the terms of the Community Reinvestment Act which raises the danger of customer protests against closings if it appears the bank is under-serving certain groups of customers.Finally,the Community Reinvestment Act can be used as a vehic
47、le to prevent U.S.banks and thrifts from branching expansion when they have a poor record of serving all segments of their communities.Closing selected branch offices can reduce operating costs and divert resources from less profitable to more profitable uses.However,they risk alienating good custom
48、er relationships unless it can serve those same customers with its remaining facilities.4-16.What new and innovative sites have been selected for new branch offices in recent years?Why have these sites been chosen by financial firms?Do you have any ideas about other sites that you believe should be
49、considered?Rapid increases in new branches located in grocery stores,shopping centers,and inside other businesses and facilities where the public frequently gathers have helped to reduce branch construction costs and promote cross-selling of goods and financial services.Other branches have been open
50、ed in apartment complexes,senior citizen centers,and other customer-convenient locations as bankers come to realize they must adjust their service locations and service hours to conform to customer needs in an intensely competitive financial-services environment.4-17.What are POS terminals and where