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April 1993, Vol. 116, No. 4
Jeffrey C. Kuster
T he banking industry is a central part of the U.S. economy, directly affecting the lives of nearly all consumers and the operations of almost every business. Commercial banks offer a wide variety of financial services, including making loans, accepting deposits, clearing checks, and many more complex operations.
The commercial banking industry was challenged in the closing years of the 1980's by internal and external forces promoting restructuring, by economic and legislative change, and by pressures to streamline operations. Commercial banking operations became more consolidated between 1987 and 1990, as a declining number of banks controlled an increasing number of branches. (A branch is an office of a bank, other than the head office, where deposits are received, checks are paid and money is lent.1 ) In many cases, the decrease in the number of banks was due to mergers and acquisitions within the industry.
Banks faced an uncertain economic and legislative climate during the closing years of the decade. Real estate values declined sharply in some areas of the country, weakening the loan portfolios and earnings of some banks. For this and other reasons, a number of banks failed. Banks also were affected by Federal legislation and deregulation, which changed the ways in which they could operate, allowing some interstate activity and limited participation in securities markets.
Many banks responded to the new environment by speeding up the implementation of new technologies and processes to streamline operations. Of particular importance was the growing use of automation and computer technology to achieve productivity gains. In addition, the numerous mergers and acquisitions often led to economies of scale, enabling many banks to consolidate certain operations, such as bookkeeping, in central offices.
This excerpt is from an article published in the April 1993 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.
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1 Statistics on Banking 1989 (Federal Deposit Insurance Corporation, 1990), p.10.
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