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August 1996, Vol. 119, No. 8
Teresa L. Morisi
Commercial banking is evolving into a highly competitive and technologically innovative industry - and is managing growing assets with fewer workers. This transformation began in 1980, when interest rates were deregulated. As competition for depositors increased, so did the number of bank failures and mergers. To better compete in a changing market, banks use computer technology to provide new services and attract customers. One of the most significant technological investments made by commercial banks is the automated teller machine (ATM). ATM's introduced the power of computer technology to the general public and made banking convenient for consumers. Today, ATM's deliver banking services 24 hours a day, 7 days a week to more than 22 million people in the United States.1
Bank failures and merger activity have contributed to employment declines; however, computer technology in the form of ATM's may have contributed as well. This article discusses how commercial banks cut costs and offer new services through the use of ATM and other computer technology. The role of technology in reducing employment is analyzed, along with the trend toward mergers and consolidations and competition from non-bank institutions.
Productivity increases. According to a recent Bureau of Labor Statistics study of industry productivity trends, productivity in commercial banks increased 10.8 percent between 1992 and 1993, the largest gain among all measured nonmanufacturing industries. In fact, during the 1973-93 period, commercial banks bad the highest long-term growth in productivity than any of the measured finance and services industries.2 The long-term growth in productivity can be attributed to some extent to the increased use of technology, such as computerization of check handling functions.3
Deregulation. Deregulation of interest rates began in 1980, when Congress passed the Depository Institutions Deregulatory and Monetary Control Act. The act gradually abolished restrictions on interest rates over the next 5 years, and also permitted growth of ATM's over State lines.4 Prior to the act, banks had been subject to a ceiling on the level of interest they could pay depositors. With the elimination of the ceiling, interest rates became a selling point, leading to fierce competition among banks for depositors, which in turn led banks to try to find ways to cut costs and attract customers. The offering of new services such as ATM's was one way of achieving these goals.
This excerpt is from an article published in the August 1996 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 James B. Shanahan, "ATM Revolution Keeps marching on," The American Banker, Nov. 27, 1995, p. 2A
2 Productivity By Industry, 1993 and 1994, USDL 96-15 (Bureau of Labor Statistics, Jan. 30, 1996). The latest year available for commercial banks is 1993.
3 Productivity Measures for Selected industries and Government Services, Bulletin 2461 (Bureau of labor Statistics, May 1995), p. 7.
4 Stephen Koepp, "Banking Takes a Beating," The New York Times, may 3, 1987, p. 27.
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