Banking in the United States

Abstract: The U.S. banking industry has been transformed utterly over the past 25 years. Mergers and acquisitions have halved the population of commercial banks, the largest banks have increased in size ten-fold, and banks ’ exposure to market risk has increased. The regulatory framework set into place during the Great Depression has been largely dismantled, new technologies have revolutionized how banks produce and distribute financial services, and dramatic increases in competition have pressured banks to operate more efficiently. Banks of all sizes now compete head-to-head for retail customers using very different business strategies; small banks provide person-to-person retail services and often specialize in lending to local businesses, while large banks provide high-volume retail services and compete in commercial lending, investment banking, and insurance markets around the world. These changes have brought great efficiencies to the banking industry and its customers, but they have also introduced new instabilities to the system. During the past decade, U.S. banks have experienced sustained periods of historically high profits and also suffered episodes of shockingly large investment losses. Balancing market efficiencies with financial stability is the challenge facing regulatory authorities and policymakers as this dynamic industry moves into the 21st Century