Banking in the United States

Where would we be today without banks? Banking in the United States plays a great part in the economy, from the banking roles within the economy, the bank’s role in the consumer protection, lending practices, emerging trends and the ethics with in banking. The banking industry has greatly evolved since the first bank back in 1791 to the present. With all the technology advancements and the acts that have been passed along the way.

Where would we be without banks? Where would you go to get a loan, where would you put your savings, how would you be able to securely send money to pay for goods and services? Banks play a large role in the economy from the services they offer to consumers to the activities and services they offer to the communities.

According to a report written by Federal Reserve Bank of Kansas City (KC.FRB.org, (2003)), the banking system is unusual in consisting not only of some very large banks but also a large number of small community banks. The large banks have become complex organizations that engage in a wide range of activities. They also provide a variety of services to their customers that smaller banks cannot provide, but rely on hard financial information, computer models, and centralized decision-making as the basis for conducting business. While small banks have focused more on relationship banking, basing their main decisions on the knowledge of customers’ creditworthiness and the understanding of the way they serve their communities. While both are important to consider each attract different customers. Many potential customers may find the small town banks to be more appealing as they offer a more intimate banking relationship, while others may find the large banking organizations to be more appealing as they offer a lot more services and have many locations throughout the United States.

Let’s first look more in depth to the community banks. According to a report by Federal Reserve Bank of Kansas City (KC.FRB.org, (2003)) they account for a large share of all banks but a much smaller share of total banking activities. At the end of 2002 the represented 89 percent of all banks, however the reason why they have a smaller share of the banking activities is that they have less access than larger banks to non-deposit sources of federal funds, repurchase agreements, and subordinated debt. Over the last few decades the community banks’ offices have fallen at least 18 percent and their share of bank deposits, loans, and assets have fallen by about 15 percent. The only banks that have not seen a decline in these areas are the megabanks, which are the big gainer banks that are over $100 billion in size.

Large bank organizations also play an important role in that they employ more that 1 million Americans. Their credit capacity and array of financial services support the operations of America’s globally active businesses, which in turn employ 20 percent of U.S. workers. Large banks also created and operate the modern payments system, which keeps commerce turning. Along with community and regional banks, they also provide critical financing for state and local governments. (Keating, F. (2013))

Banks also have a larger role in providing customer protection. According to The World Bank (2012) article Good Practices for Financial Consumer Protection, there are several things that financial institutions should do to protect their consumers. Banks follow a principles-based code of conduct. This would be devised by all banks or the banking association with the financial supervisory agency and consumer associations. Also should be monitored by a statutory agency of an effective self-regulatory agency. This code of conduct should also be publicized and disseminated to the general public. The code of conduct is generally comprised of the following (The World Bank (2012)):
• Governing principles and objectives of the code.
• The banking