session 5 - industrial banks

8/19/2019 Session 5 - Industrial Banks

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INDUSTRIAL BANK SESSION 5


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Learning Outcomes

Understand the meaning and terminologies in Industrialban ing!

Understand the characteristics o" Industrial ban ing!

Kno# about the $arious "unctions o" industrial ban s!


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DE%INITION

A &nancial institution #ith a limited sco'e o" ser$ices!

Industrial ban s sell certi&cates that are labeled as in$estment shares and alsoacce't customer de'osits!

The( then in$est the 'roceeds in installment loans "or consumers and smallbusinesses!

These ban s are also no#n as Morris banks or industrial loan companies


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INTRODU)TION

Industrial ban s di*er "rom commercial lenders because the( acce't de'osits!

The( also di*er "rom commercial ban s because the( do not o*er chec ingaccounts!

%urthermore+ the loans o*ered b( industrial ban s are o"ten secured b( a third'art( #ho acts as guarantor "or the loan!


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IL)s+ also no#n as industrial ban s+ &rst emerged in the earl( ,-..s to 'ro$idesmall loans to industrial #or ers!

This mar et de$elo'ed because commercial ban s #ere generall( un#illing too*er uncollaterali/ed loans to "actor( #or ers and other #age earners #ithmoderate incomes!

0uch o" the earl( success o" industrial ban s can be attributed to Arthur 1!0orris+ #ho chartered the &rst IL) in ,-,. and established the basic "rame#or"or 0orris 2lan ban s!

0orris 2lan ban s s'read to o$er ,3. cities b( the earl( ,-4.s and became theleading 'ro$iders o" consumer credit to lo#er income #or ers!

INTRODU)TION


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Since then+ commercial ban s and other institutions ha$e largel( ta en o$er therole o" 'ro$iding small consumer loans+ thus lea$ing traditional IL)s #ith onl( asmall segment o" the consumer lending business!

IL)s enable commercial &rms to o*er &nancing to their customers+ clients+ ordealers+ thereb( su''orting a com'an(6s o'erations!

%or e7am'le+ auto com'anies and manu"acturers can use IL) lending to hel'boost sales o" cars and other 'roducts! Such &rms can also use IL)s to attract ne#customers and retain e7isting ones!


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INTRODU)TION

Industrial loan com'anies+ or IL)s+ are a small+ but ra'idl( gro#ing 'art o" the&nancial industr(!

These state chartered institutions o'erate in se$en states and ha$e nearl( all o"the same 'o#ers as commercial ban s!

8o#e$er+ IL)s di*er greatl( "rom ban s in one characteristic9the t('e o"com'anies that ma( o#n them!

IL)s meeting certain conditions ma( be o#ned and o'erated b( &rms engaged incommercial acti$ities+ thus s irting the 'rohibitions on mi7ing ban ing andcommerce that a''l( to $irtuall( all other de'ositor( institutions


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)ommercial o#nershi' is no# a 'rominent to'ic in ban ing #ith :al 0art6srecent attem't to o'en an IL) and 8ome De'ot6s e*orts to ac;uire an e7istingIL)!

At the center o" this contro$ers( are such ;uestions as #hether commercial &rms9retailers+ manu"acturers+ and others9should be allo#ed to use IL)s to get into

ban ing and #hat #ould be the 'ublic 'olic( im'lications o" such entr(!%inancial and commercial &rms ha$e made signi&cant inroads into the IL)industr(+ mostl( #ithin the last decade!

Among the most recogni/able o#ners o" IL)s are 0errill L(nch+ 0organ Stanle(+American E7'ress+


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)ATE


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ILCs owned by a commercial frm

generall( o*er a range o" &nancial ser$ices that su''ort the commercial o'erationso" their 'arent+

including credit card lending+ loans to su''ort the sale o" automobiles or other 'arentcom'an( 'roducts+ and home e;uit( loans!

)ATE


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TO2 5 INDUSTRIAL BANKS

0errill L(nch Ban US

UBS Ban USA

American E7'ress )enturion Ban

0organ Stanle( Ban


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)8ARA)TERISTI)S O% INDI=IDUALIL)S

ILCs owned by fnancial companies

Se$eral di*erent t('es o" &nancial &rms o#n IL)s+ including securities &rms+com'anies 'ro$iding credit card ser$ices+ and insurance com'anies!

Merrill Lynch Bank (MLB)—Merrill Lynch and Co., Inc.,

owns the largest IL)+ 0errill L(nch Ban !

8ead;uartered in Salt La e )it(+ Utah+

0LB has more than >?@ billion in total assets!

It has t#o branches at 0errill L(nch o ces9one in Ne# 1erse( and the other in Ne# or9and a $ariet( o" in$estment and lending subsidiaries!

0LB o*ers a number o" di*erent de'osit accounts


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0LB is similar to most large commercial ban s in the 'ortion o" its assets de$oted toloans+ but it has less need to hold cash and maintains a larger securities 'ort"olio!

0LB holds a $ariet( o" commercial+ real estate+ and consumer loans+ #ith much o" thisbusiness generated through its lending subsidiaries!

Unli e t('ical de'ositor( institutions that might maintain a large o ce net#or to o*erretail ban ing ser$ices+ 0LB o'erates #ith e7tremel( lo# salar( and 'remises costs!

Other ILCs owned by securities frms— e!eral other ILCs are owned b( internationall( acti$e securities and in$estment &rms!


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Other ILCs owned by securities frms— e!eral other ILCs are owned b( linternationall( acti$e securities and in$estment &rms!

These include UBS Ban USA+ 0organ Stanle( Ban +


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Another common characteristic among these IL)s is their lower operatingcost relative to commercial banks !

Unli e large commercial ban s #ith their e7tensi$e retail ban ing net#or s+these IL)s each o'erate with just a single o ce !

Also+ the( t('icall( ha$e a very small number o employees + insteadrel(ing on their 'arent com'an( to generate and boo much o" the businessthe( do!

This o'erational structure results in high income le$els "or most o" these IL)s+#hile allo#ing them to o*er com'etiti$e rates to their customers!

Also+ the IL)s o#ned b( securities &rms generall( o'erate #ith a higher lo capital than do commercial ban s o" similar si/e!


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ILCs owned by credit card com"anies— e!eral ILCs are owned by com'aissue credit cards or 'ro$ide a $ariet( o" ser$ices #ithin the credit card industr(!

One o" these IL)s+ American E7'ress )enturion Ban CAE)B o#ned b( American E7'ress)om'an(

AE)B has > ,!, billion in assets+ most o" #hich consist o" credit card loans to indi$iduals

%unding "or these loans largel( comes "rom other borro#ed "unds+ bro ered de'osits+ and"oreign de'osits

ILCs owned by insurance com"anies—#nother $rou" o% ILCs are o#ned b(conducting insurance acti$ities and other related business

It o*ers healthcare sa$ings accounts+ healthcare account and Fe7ible s'ending cards+ andother healthcare 'a(ments ser$ices!


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ILCs owned by commercial companies

most commerciall( o#ned IL)s "ocus on acti$ities that su''ort the commercialacti$ities o" their 'arent+ #hile a "e# engage in broader ban ing ser$ices!

)ommerciall( o#ned IL)s "all intoG

owned by automotive companies


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&'# O* 'I ILC *+ *-I* C*'O& / 0

IL)s o#ned b( &nancial &rms and commercial com'anies are 'ursuing a range o"business strategies+ and most ha$e relied on the 'arent com'an( and its clients andcustomers "or much o" their business!

In terms o" o$erall 'er"ormance+ the IL)s o#ned b( &nancial &rms and b(commercial com'anies generall( ha$e been success"ul in &nding a uni;ue and

s'eciali/ed base o" customers to ser$e and in de$elo'ing inno$ati$e 'roducts "orthis targeted audience


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DE=ELO20ENT BANK


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DE%INITION

De$elo'ment ban + national or regional &nancial institution designed to 'ro$idemedium and long term ca'ital "or 'roducti$e in$estment+ o"ten accom'anied b(technical assistance

Number o" de$elo'ment ban s has increased ra'idl( since the ,-5.s

The( ha$e been encouraged b( the Internal Ban "or Reconstruction andDe$elo'ment C:orld Ban%or E7am'le+

Inter American de$elo'ment ban

Asian De$elo'ment Ban

A"rican De$elo'ment Ban


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%UN)TIONS O% DE=ELO20ENT BANK

2romote in$estments in the region o" 'ublic and 'ri$ate ca'ital "orde$elo'ment 'ur'ose

2ro$ide loans "or the economic and social de$elo'ment o" the membercountries o" the region

8el' member countries in coordinating their de$elo'mental 'oliciesand 'lans

2ro$ide technical assistance "or the 're'aration+ &nancing ande7ecution o" de$elo'ment 'roHects and 'rograms


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2ro$ide &nancial and technical assistance to member countries "oren$ironmental 'rotection

Act as &nancial intermediar( b( trans"erring resources "rom globalca'ital mar ets to de$elo'ing countries

Su''ort 'ublic resources mobili/ation and management to membercountries

%UN)TIONS O% DE=ELO20ENT BANK


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I02ORTAN)E O% DE=ELO20ENTBANK

2ro$iding counter c(clical &nance as 'ri$ate &nance "alls!


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session 5 - industrial banks

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