BANKING IN THE UNITED STATES
The United States banking system differs radically from those in such countries as Canada, the United Kingdom, and Germany, where a handful of organizations dominate banking. In the past, geographical constraints on expansion prevented banks from moving beyond their state or even beyond their county. Thus, many small bankers were protected from competition. The result is a national network of almost 12,000 commercial banks. More recently, most states as well as the federal government have loosened the regulation of banks, especially in the area of mergers and acquisitions. Many banks have grown by taking over other banks inside and outside their home states. The largest banks account for the bulk of banking activity. Fewer than 5 per cent of the banks in the United States are responsible for more than 40 per cent of all deposits; 85 per cent of the banks hold less than one fifth of total deposits. The Federal Reserve System, composed of 12 Federal Reserve Banks and 25 Federal Reserve Districts throughout the United States, is the central bank, banker to the US government, and supervisor of the nation’s banking industry.
The US banking system is distinguished by a tradition of thrift institutions established to remedy the commercial sector’s historic neglect of the non-business consumer market. Savings and loan associations (SLAs), which first appeared in the 1830s, were patterned after cooperative movements in Scotland and England. Dealing mostly in residential real estate mortgages, and particularly in home mortgage loans, SLAs exist primarily to support home ownership. In the late 1980s the failures of many SLAs caused the government to overhaul the industry and place it under federal supervision. American savings banks, established with similar intentions, invest the deposits of customers in stocks and bonds, especially government bonds, and also provide mortgage services. Credit unions likewise invest money on behalf of members.
While government regulation of commercial banking since the mid-1930s has led to a low failure rate and preserved a substantial amount of competition in some markets, local monopolies have also been implicitly encouraged. Moreover, stringent regulations have caused some bankers to devote considerable resources to circumventing government controls. Rethinking of the role of government regulation in the economy in general may lead towards even further liberalization of controls over the banking system.