Assignment

300 words

 

Market Share versus Profits in Banking

Economists representing the Federal Reserve, the FDIC, and the Office of the Comptroller of the Currency have gathered for meeting discuss a formal response to concerns that top managers at some of the nation’s largest banks have expressed in a joint memorandum issued by the banks to all three regulators. The bank officials are concerned about the on-going shrinkage of bank assets as a share of total assets of financial institutions in the United States. In the late 1990s, assets of commercial banks as a percentage of total assets of U.S. financial institutions fell below mutual funds’ share of total financial institution assets. If current trends continue, the share of total financial assets in pension funds also will bypass banks’ share of total assets sometime before 2010.

The bankers admit that they earned relatively high net interest margins and returns on equity and assets during the 1990s even as these market share trends were in progress. They also admit that their fee income and trading profits earned from derivatives and other off-balance-sheet activities have increased significantly in recent years. Nevertheless, the bankers are getting nervous. Isn’t it time, they ask in the memorandum, for bank regulators to start pushing Congress to ease up on their regulatory burden and to toughen the rules for other financial institutions so that banks will have a better chance of pushing back up their institutions’ share of total assets among all financial institutions?

How should the Fed, FDIC, OCC economists respond to this argument

Market

Share versu

s Profits in Banking

Economists representing the Federal Reserve, the FDIC, and the Office of the

Comptroller of the Currency have gathered for meeting discuss a formal

response to concerns that top managers at some of the nation’s largest banks

have expre

ssed in a joint memorandum issued by the banks to all three

regulators. The bank officials are concerned about the on

–

going shrinkage of

bank assets as a share of total assets of financial institutions in the United

States. In the late 1990s, assets of com

mercial banks as a percentage of total

assets of U.S. financial institutions fell below mutual funds’ share of total

financial institution assets. If current trends continue, the share of total financial

assets in pension funds also will bypass banks’ shar

e of total assets sometime

before 2010.

The bankers admit that they earned relatively high net interest margins and

returns on equity and assets during the 1990s even as these market share

trends were in progress. They also admit that their fee

income and trading profits

earned from derivatives and other off

–

balance

–

sheet activities have increased

significantly in recent years. Nevertheless, the bankers are getting nervous. Isn’t

it time, they ask in the memorandum, for bank regulators to start p

ushing

Congress to ease up on their regulatory burden and to toughen the rules for

other financial institutions so that banks will have a better chance of pushing

back up their institutions’ share of total assets among all financial institutions?

How shoul

d the Fed, FDIC, OCC economists respond to this argument

Market Share versu
s Profits in Banking

Economists representing the Federal Reserve, the FDIC, and the Office of the
Comptroller of the Currency have gathered for meeting discuss a formal
response to concerns that top managers at some of the nation’s largest banks
have expre
ssed in a joint memorandum issued by the banks to all three
regulators. The bank officials are concerned about the on
–
going shrinkage of
bank assets as a share of total assets of financial institutions in the United
States. In the late 1990s, assets of com
mercial banks as a percentage of total
assets of U.S. financial institutions fell below mutual funds’ share of total
financial institution assets. If current trends continue, the share of total financial
assets in pension funds also will bypass banks’ shar
e of total assets sometime
before 2010.

The bankers admit that they earned relatively high net interest margins and
returns on equity and assets during the 1990s even as these market share
trends were in progress. They also admit that their fee
income and trading profits
earned from derivatives and other off
–
balance
–
sheet activities have increased
significantly in recent years. Nevertheless, the bankers are getting nervous. Isn’t
it time, they ask in the memorandum, for bank regulators to start p
ushing
Congress to ease up on their regulatory burden and to toughen the rules for
other financial institutions so that banks will have a better chance of pushing
back up their institutions’ share of total assets among all financial institutions?

How shoul
d the Fed, FDIC, OCC economists respond to this argument