Banking Review2004 VOLUME 16, NOS. 1 AND 2
This year's FDIC Banking Review features papers from the FDIC's Future of Banking project. Initiated by
Chairman Donald Powell, the study projects likely trends in the structure and performance of the banking
industry and anticipates the policy issues that will confront the industry and the regulatory community in
the coming years.
The Future of Banking in America
Summary and Conclusions (page 1)
by George Hanc
This paper summarizes the 16 papers that constitute the future of banking study, and finds that the
industry has favorable prospects for the years immediately ahead. The paper concludes with a
discussion of possible events that might alter this outcome.
The Evolving Role of Commercial Banks in U.S. Credit Markets (page 29)
by Katherine Samolyk
The author examines 50 years of Flow of Funds Accounts (FFA) quarterly data to assess the
significance of commercial banks in the provision of credit in the United States.
The Effect of U.S. Banking on Payment System Changes (page 67)
by Neil B. Murphy
The author discusses the major payments methods with emphasis on the major interbank networks
and their implications for banks and the regulatory community.
The views expressed are those of the authors and do not necessarily reflect official positions of the Federal Deposit Insurance
Corporation. Articles may be reprinted or abstracted if the FDIC Banking Review and author(s) are credited. Please provide the
FDIC’s Division of Insurance and Research with a copy of any publications containing reprinted material.
Single-copy subscriptions are available to the public free of charge. Requests for subscriptions, back issues or address changes
should be mailed to: FDIC Banking Review, Public Information Center, 801 17th Street, N.W., Washington, DC 20434.
Chairman Donald E. Powell
Director, Division of Insurance Arthur J. Murton
and Research
Deputy Director Fred Carns
Managing Editor Jack Reidhill
Editorial Committee Christine E. Blair
Valentine V. Craig
Rose M. Kushmeider
Publication Manager Geri Bonebrake
This year's FDIC Banking Review features papers from the FDIC's Future of Banking project. Initiated by
Chairman Donald Powell, the study projects likely trends in the structure and performance of the banking
industry and anticipates the policy issues that will confront the industry and the regulatory community in
the coming years.
The Future of Banking in America
Summary and Conclusions (page 1)
by George Hanc
This paper summarizes the 16 papers that constitute the future of banking study, and finds that the
industry has favorable prospects for the years immediately ahead. The paper concludes with a
discussion of possible events that might alter this outcome.
The Evolving Role of Commercial Banks in U.S. Credit Markets (page 29)
by Katherine Samolyk
The author examines 50 years of Flow of Funds Accounts (FFA) quarterly data to assess the
significance of commercial banks in the provision of credit in the United States.
The Effect of U.S. Banking on Payment System Changes (page 67)
by Neil B. Murphy
The author discusses the major payments methods with emphasis on the major interbank networks
and their implications for banks and the regulatory community.
The views expressed are those of the authors and do not necessarily reflect official positions of the Federal Deposit Insurance
Corporation. Articles may be reprinted or abstracted if the FDIC Banking Review and author(s) are credited. Please provide the
FDIC’s Division of Insurance and Research with a copy of any publications containing reprinted material.
Single-copy subscriptions are available to the public free of charge. Requests for subscriptions, back issues or address changes
should be mailed to: FDIC Banking Review, Public Information Center, 801 17th Street, N.W., Washington, DC 20434.
Chairman Donald E. Powell
Director, Division of Insurance Arthur J. Murton
and Research
Deputy Director Fred Carns
Managing Editor Jack Reidhill
Editorial Committee Christine E. Blair
Valentine V. Craig
Rose M. Kushmeider
Publication Manager Geri Bonebrake
The Future of Banking in America
Summary and Conclusions
George Hanc*
Purpose and Approach of the
Future-of-Banking Study
The purpose of the FDIC’s study of the future of
U.S. banking is to project likely trends in the
structure and performance of the banking industry
over the next five to ten years and to anticipate
the policy issues that will confront the industry
and the regulatory community.1
This study comes 17 years after the FDIC’s last
comprehensive consideration of the future of
banking.2 That earlier study, Mandate for Change,
was undertaken against a background of increased
competition for banks, weak profitability, and a
reduced market share in commercial lending. The
study recommended product and geographic
deregulation, with appropriate safety-and-sound
ness safeguards, to ensure the viability of the
banking industry.
Since then, the environment for banking has
changed radically. Legislation was enacted to per
mit both interstate branching and combinations
of banks, securities firms, and insurance compa
nies. A generally strong economy, as well as
deregulation, led to marked improvements in
bank profitability and capital positions. At the
same time, however, the deregulation of products
and markets intensified competition among banks
and between banks and nonbank financial com
panies. In addition, together with improved infor
mation technology, deregulation accelerated the
consolidation of the banking industry through
mergers and acquisitions and set the stage for the
establishment of huge banking organizations of
unprecedented size and complexity.
Although the condition of the industry has great
ly improved over the past decade or so, banks and
the regulatory community will face significant
challenges in the years ahead. Competition will
continue to be intense, and few banks, if any, will
be insulated from its effects. In the view of some
observers, rapid consolidation of the banking
industry will continue and may adversely affect
the availability of credit for small businesses and
local economies. Large, complex banking organi
zations may pose difficult supervisory issues, while
* Former Associate Director, Division of Insurance and Research, Federal
Deposit Insurance Corporation.
1 Throughout the paper, “this study” refers to the FDIC’s collective project on
the future of banking (FOB), consisting of the 16 papers listed in the first
section of the references.
2 FDIC (1987).
FDIC BANKING REVIEW 1 2004, VOLUME 16, NO. 1
Summary and Conclusions
George Hanc*
Purpose and Approach of the
Future-of-Banking Study
The purpose of the FDIC’s study of the future of
U.S. banking is to project likely trends in the
structure and performance of the banking industry
over the next five to ten years and to anticipate
the policy issues that will confront the industry
and the regulatory community.1
This study comes 17 years after the FDIC’s last
comprehensive consideration of the future of
banking.2 That earlier study, Mandate for Change,
was undertaken against a background of increased
competition for banks, weak profitability, and a
reduced market share in commercial lending. The
study recommended product and geographic
deregulation, with appropriate safety-and-sound
ness safeguards, to ensure the viability of the
banking industry.
Since then, the environment for banking has
changed radically. Legislation was enacted to per
mit both interstate branching and combinations
of banks, securities firms, and insurance compa
nies. A generally strong economy, as well as
deregulation, led to marked improvements in
bank profitability and capital positions. At the
same time, however, the deregulation of products
and markets intensified competition among banks
and between banks and nonbank financial com
panies. In addition, together with improved infor
mation technology, deregulation accelerated the
consolidation of the banking industry through
mergers and acquisitions and set the stage for the
establishment of huge banking organizations of
unprecedented size and complexity.
Although the condition of the industry has great
ly improved over the past decade or so, banks and
the regulatory community will face significant
challenges in the years ahead. Competition will
continue to be intense, and few banks, if any, will
be insulated from its effects. In the view of some
observers, rapid consolidation of the banking
industry will continue and may adversely affect
the availability of credit for small businesses and
local economies. Large, complex banking organi
zations may pose difficult supervisory issues, while
* Former Associate Director, Division of Insurance and Research, Federal
Deposit Insurance Corporation.
1 Throughout the paper, “this study” refers to the FDIC’s collective project on
the future of banking (FOB), consisting of the 16 papers listed in the first
section of the references.
2 FDIC (1987).
FDIC BANKING REVIEW 1 2004, VOLUME 16, NO. 1