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Establishing New Banks, Branches, ATMs, Telephone Services, and Web Sites
Key Topics
Chartering New Financial Services Institutions Performance of New Banks Establishing Full Service Branches and InStore Branching Establishing Limited Service Facilities ATMs and Telephone Centers The Internet and Online Banking
McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
State Banking Commissions in the 50 States for State Banks All Banks Obtain FDIC Deposit Insurance as part of the chartering process
McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
State May Allow Bank to Lend More of its Capital to a Single Borrower and Offer Other Services
McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
Quick Quiz
Why is the creation (chartering) of new banks closely regulated? Who charters new banks in the United States? New thrift institutions? What are the advantages of having a national vs. state bank charter?
McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
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Financial Plan
McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
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Normally Located in Relatively Large Urban Areas with High Population Growth
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Heavy Traffic Count Large Number of Retail Shops and Stores Above Average Age of Local Populations Area Contains Substantial Number of Managers, Business Owners and Professionals Steady or Declining Number of Service Facilities Operated by Competitors Above Average Population Growth Above Average Population Density Relatively High Target Population per Branch Above Average Levels of Household Income
McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
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The Decision of Whether to Establish a Branch Office is a Capital Budgeting Decision. The Present Value of the Net Future Cash Flows Should Be Larger Than the Initial Outlay
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Geographic Diversification
Reducing a Banks Overall Risk Exposure to its Total Return By Establishing Service Facilities in Different Market Areas Whose Individual Returns are Not Highly Correlated with the Returns from a Banks Existing Market Locations
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Branch Regulation
FDIC Improvement Act Requires Institutions to Notify Their Regulatory Agency and Customers 90 Days Prior to Closing a Branch Community Reinvestment Act of 1977 Requires Them to Make an Effort to Reach All Segments of Their Communities With Services
McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
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Lest Costly to Build and Maintain Experience More Traffic Flow than Normal Branches Deposit Volume May be Heavier Because they Attract Stores Own Deposits
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Limited-Service Facilities
Point of Sale (POS)Terminals Automated Teller Machines (ATMs) Home and Office Banking Telephone Banking and Call Centers Internet-Banking
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ATMs
Less Costly to Set Up ($70,000-$80,000) and Operate (about 36% compared to a human teller per transaction) But Less Effective at Cross Selling, Less Personal Service, and More Vulnerable to Criminal Activity Decision to Install ATM: The Bank Examines the Present Value of the Stream of Cash Savings from the New ATM Machine
McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
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Quick Quiz
What factors are often considered in evaluating possible sites for new branch offices? What laws and regulations affect the creation of new bank and thrift branches and the closing of existing branches? What services do ATMs provide? What are the main advantages and disadvantages of ATMs as a service provider? Should ATMs carry fees?
McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.