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1、CHAPTER 4CHAPTER 4CREATING AND MANAGING SERVICE OUTLETS:CREATING AND MANAGING SERVICE OUTLETS:NEW CHARTERS, BRANCHES, AND ELECTRONIC FACILITIESNEW CHARTERS, BRANCHES, AND ELECTRONIC FACILITIESGoal of This Chapter: The purpose of this chapter is to learn how new banks are chartered by stateand federa
2、l authorities in the United States, to determine what makes a good site for a new branchoffice, to recognize how the role of branch offices is changing, and to explore the advantages anddisadvantages of automated banking facilities.Key Topics in This ChapterChartering New Financial Service Instituti
3、onsPerformance of New BanksEstablishing Full Service BranchesIn-Store BranchingEstablishing Limited Service FacilitiesATMs and Telephone CentersThe Internet and Online BankingChapter OutlineI.IntroductionA.The Importance of Convenience and Timely Access to CustomersB.Service Options Available Today1
4、.Chartering New (De Novo) Financial Institutions2.Establishing New Full-Service Branches3.Setting Up Limited-Service FacilitiesII.Chartering a New Bank or Other Financial Service InstitutionsIII.The Bank Chartering Process in the United StatesA.The Chartering Authorities in the U.S.B.Benefits of App
5、lying for a National CharterC.Benefits of Applying for a State CharterIV.Questions Regulators Usually Ask the Organizers of a New BankV.Factors Weighing on the Decision to Seek a New Bank CharterA.External Factors1.Level of Economic Activity2.Growth of Local Economic Activity3.The Need for a New Ban
6、k4.Strength and Character of Local Competition in Supplying FinancialServicesInternal Factors1.Qualifications and Contacts of the Organizers2.Management Quality3.Pledging of Capital and Funds to Cover the Cost of Filing a CharterApplication and Getting UnderwayVI.Volume and Characteristics of New Ba
7、nk ChartersA.Numbers of New ChartersB.Characteristics of New Charter MarketsVII.How Well Do New Banks PerformA.New Bank Financial PerformanceB.Pro-Competitive Effects on Service Offerings and Service PricingVIII.Establishing Full-Service Branch Offices: Choosing Locations and Designing NewBranchesA.
8、Advantages of Full-Service BranchesB.Trends in the Design of New BranchesC.Desirable Sites for New BranchesD.Expected Rate of ReturnE.Geographic DiversificationF.Branch RegulationG.The Changing Role of BranchesH.In-Store BranchingIX.Establishing and Monitoring Automated Limited-Service FacilitiesX.P
9、oint-of-Sale TerminalsXI.Automated Tellers (ATMs)A.History of ATMsB.ATM ServicesC.Fee Structures for ATM UsageD.Customer Service Limitations of ATMsE.Example of the ATM Capital-Budgeting DecisionXII.Home and Office Online BankingA.Telephone Banking and Call CentersB.Internet Banking1.Services Provid
10、ed Through the Internet2.Challenges in Providing Internet Services3.The Net and Customer Privacy and SecurityXIII.Financial Service Facilities of the FutureXIV.Summary of the ChapterConcept Checks4-1.Why is the physical presence of a bank still important to many bank customers despiterecent advances
11、 in long-distance communications technologyB.Many customers still prefer the personal attention and personal service that contact with bankemployees provides. Moreover, for those services where problems can arise that require detailedinformation and explanation-for example, when a checking account i
12、s overdrawn and checksbegin to bounce-the customer needs quick access and, often, the personal attention to his or herproblem on the part of one or more employees.4-2.Why is the creation (chartering) of new banks closely regulated What about nonblankfinancial firmsThe creation of new banks is regula
13、ted to insure the safety and soundness of existing banks and toavoid excessive numbers of bank failures. The same arguments are usually made for non-bankfinancial firms. Financial-Service firms hold the publics savings, are the heart of the paymentsystem and create money. The failure of these firms
14、could disrupt the economy and too manycould mean in excessive growth in the money supply and inflation.4-3.What do you see as the principal benefits and costs of government regulation of the numberof financial service charters issuedWhile control over the entry of new banks may reduce the number of
15、failures, it also limitscompetition, so that the public may receive a smaller volume or lower quality of services atexcessive prices.4-4.Who charters new banks in the United States New thrift institutionsNew banks are chartered by the banking commissions of the individual states or, at the federalle
16、vel, by the Comptroller of the Currency. Thrift institutions are chartered by the states or at thefederal level by the Office of Thrift Supervision.4-5.What key role does the FDIC play in the chartering processThe FDIC exercises some control over state bank charter activity as well as federal charte
17、rsbecause most states insist that their new banks qualify for federal deposit insurance before they canopen for business.4-6.What are the advantages of having a national bank charter A state bank charterThe benefits of a national charter are:a.)It brings prestige due to stricter regulations and may
18、help attract more customersb.)In times of trouble the technical assistance given may be better ensuring a betterchance of long run survivalThe benefits of a state charter are:a.)It may be easier and less costly to get a state charterb.)The bank does not have to join the Federal Reserve and therefore
19、 avoids buying andholding low yield stock of the Federal Reservec.)Many states let a bank lend more to one borrowerd.)State chartered banks may be able to make types of loans that a nationally charteredbank cannot4-7.What kinds of information must the organizers of new national banks provide theComp
20、troller of the Currency in order to get a charter Why might this required information beimportantThe Comptroller of the Currency asks for information on the number of competing banks andbank-like institutions in the service area of the proposed bank. More competitive market situationslimit the profi
21、t potential and perhaps the growth potential of a new bank. Also requested isinformation about shopping centers, retail and wholesale business activity, recent populationgrowth, traffic counts, and personal income levels - all viewed as indicators of potential demandfor banking services in the servi
22、ce area of the proposed new bank. Applicants must also providebackground information on the organizers and proposed management of a new bank so theComptroller can decide if these people are qualified, law-abiding, and trustworthy to manage thepublics funds as well as their own.4-8.Why do you think t
23、he organizers of a new financial firm are usually expected to puttogether and submit to the chartering authority a detailed business plan, including marketing,management, and financial componentsThis demonstrates to regulators that the organizers of the bank have the expertise, experience andskills
24、necessary to be successful in managing the new bank. If the organizers of a bank do notknow where they are going, they are unlikely to be successful. In addition, it demonstrateswhether the organizers of the new bank have a realistic picture of the community they are planningon serving and whether t
25、he organizers have a realistic view of the profit potential in the new bank.4-9.What are the key factors the organizers of a new financial firm should consider beforedeciding to seek a charterWhile a variety of factors are examined by different business people interested in establishing anew bank, m
26、ost look at some or all of the following factors.1.External Factorsa.The level of local economic activity.b.Growth of local economic activity.c.The need for a new bank.d.The strength and character of local competition in supplying financialservices.2.Internal Factorsa.Qualifications and contacts of
27、the new banks organizers.b.Management quality.c.Pledging of capital and funds to cover the cost of filing a charter applicationand begin operations.4-10.Where are most new banks chartered in the United StatesNew charters tend to be concentrated in large urban areas where expected rates of return on
28、theorganizers investments are likely to be the highest. As the population increases relative to thenumber of financial firms, the number of new charters increases. The success of local banksalready in the area suggests that new financial firms would also be successful. Places where theconcentration
29、ratio for new banks has increased tend to have fewer new bank charters.4-11.How well do most new banks perform for the public and for their ownersMost new banks succeed, especially those whose organizers can bring in new deposits and loanaccounts during the first year of the banks operation. Most ar
30、e profitable within two to three yearsof opening. There is some evidence that newly charted banks are financially fragile and moreprone to failure than existing banks. They appear to be more vulnerable to real estate crises thanestablished banks. New banks tend to under perform their competitors unt
31、il they have beenaround for a while and new banks are more closely supervised than established banks.4-12.Why is the establishment of new branch offices usually favored over the chartering of newfinancial firms as a vehicle for delivering financial servicesThe chartering of a new financing corporati
32、on is normally a lengthy and expensive process,requiring the completion of elaborate federal or state application forms, while the branchapplication process is normally far simpler and less costly. Moreover, with the increase in thenumber of failures in recent years regulatory-imposed capital requir
33、ements for new charters haveincreased substantially, while new branch offices usually carry significantly lower capitalrequirements. Moreover, branch offices themselves are often much less elaborate and costly tobuild and maintain than are the headquarters facility of a new institution where some du
34、plicatefacilities can be eliminated (for example, checking processing, credit analysis, and recordsdepartments).4-13.What factors are often considered in evaluating possible sites for new branch officesBankers first need to decide the goals and objectives of a new facility. Often this means assessin
35、gwhether the proposed new branch is aimed at selling one or more particular services, such asdeposits or loans, and also deciding how closely correlated cash flows and returns from the newbranch office may be with cash flows and returns from the other facilities operated by the bank. Ifreturns or ca
36、sh flows through the proposed new institution are negatively correlated or display lowpositive correlation with the institutions other facilities, they may be able to lower the variance ofits returns or cash flows by proceeding to establish the new office.Other considerations revolve around the econ
37、omic strength of the proposed branch officesite-whether there is adequate traffic volume, large numbers of stores and shops, older or youngerage populations who often require slightly different menus of services, recent area populationgrowth, density and income, the occupational and residential make
38、up of the proposed new brancharea, a large enough population to generate enough customers to breakeven and the number andsize of facilities operated by competitors. Generally, for branches designed to attract and holddeposits key factors to consider usually revolve around individual and family incom
39、es,concentrations of retail stores and shops, older-than-average residents, and homeowners ratherthan renters. For branch facilities emphasizing credit services residential areas with substantialnew construction activity, heavy traffic flow, and high concentrations of stores and shoppingcenters are
40、typically desirable for consumer and retail loan demand, while central city officelocations are often chosen as locations for commercial loan facilities.4-14.What changes are occurring in the design of, and the roles played by, branch offices Pleaseexplain why these changes are occurring.Bank branch
41、es are increasingly becoming selling platforms in which more and more fee-basedservices are attractively and prominently advertised in order to maximize the fee-incomegenerating potential of each branch. Moreover, branches are becoming increasingly automated toreduce personnel and other operating co
42、sts and improve speed, efficiency, and accuracy inhandling a growing service volume. Branch design has come to reflect these trends withautomated facilities placed at easy access points, along with information booths to speedily directcustomers to the service areas they need. Human tellers may be pl
43、aced deeper inside branchfacilities so that customers must pass by other service departments and conspicuous advertising inorder to encourage customers to become aware of and avail themselves of other bank services.4-15.What laws and regulations affect the creation of new bank and thrift branches an
44、d theclosing of existing branches What advantages and what problems can the closing of a branch officecreateThe opening of new branch offices must be approved by a banks or thrifts principal federal orstate supervisor. Closing a branch office has become much more complicated in recent years asthe re
45、sult of several new laws and regulations. For example, the FDIC Improvement Act requires90 days advance notice of branch closings to both customers and the principal supervisory agencyand a posting on the branch site at least 30 days prior to closing. Banks and thrifts must also makean affirmative e
46、ffort to reach all segments of their communities without discrimination under theterms of the Community Reinvestment Act which raises the danger of customer protests againstclosings if it appears the bank is under-serving certain groups of customers. Finally, theCommunity Reinvestment Act can be use
47、d as a vehicle to prevent U.S. banks and thrifts frombranching expansion when they have a poor record of serving all segments of their communities.Closing selected branch offices can reduce operating costs and divert resources from lessprofitable to more profitable uses. However, they risk alienatin
48、g good customer relationshipsunless it can serve those same customers with its remaining facilities.4-16.What new and innovative sites have been selected for new branch offices in recent yearsWhy have these sites been chosen by financial firms Do you have any ideas about other sites thatyou believe
49、should be consideredRapid increases in new branches located in grocery stores, shopping centers, and inside otherbusinesses and facilities where the public frequently gathers have helped to reduce branchconstruction costs and promote cross-selling of goods and financial services. Other branches have
50、been opened in apartment complexes, senior citizen centers, and other customer-convenientlocations as bankers come to realize they must adjust their service locations and service hours toconform to customer needs in an intensely competitive financial-services environment.4-17.What are POS terminals
51、and where are they usually locatedPoint-of-sale terminals are set up to accommodate customer purchases of goods and services.These computer terminals normally are located in retail stores, gasoline stations, and similar placeswith a link to the banks own computer records. When a customer of the bank
52、 makes a purchase,the amount of the transaction is deducted from the customers deposit account and added to thestores account. Because the customer immediately loses funds many bank customers have beenhesitant to use the service as opposed to paying by check or credit card where payment is delayedfo
53、r a few days. However, this depends on whether the POS terminal is an offline or online terminal.An offline terminal accumulates all transactions until the end of the day when all transactions aresubtracted from a customers account. This type of terminal is less costly for the bank to operate.An onl
54、ine terminal subtracts the transactions immediately from the customers account andreduces the chance of an overdraft occurring but is more expensive for the bank to operate.Consumer reluctance to use POS terminals appears to be fading and as fees for other services risethis reluctance will continue
55、to disappear.4-18.What services do ATMs provide What are the principal limitations of ATMs as a serviceprovider Should ATM carry fees WhyThe earliest ATMs provided a convenient mechanism for cashing checks, making deposits, andverifying checking account balances, often at hours when the full-service
56、 branch offices wereclosed. Today, ATMs frequently provide a wide menu of old and new services, including billpaying, transfer of funds between accounts, and the purchase of tickets for travel andentertainment. Most authorities expect ATM usage to grow rapidly as these machines offer moreservices an
57、d as bankers increasingly move to restrict customer access to more costly human tellersand other bank personnel, often by charging extra fees for personal service.ATMs do have some significant limitations that bankers will have to work to overcome. Theybreak down and need to be replaced, sometimes q
58、uite frequently and annoyingly for customers,and as technology changes often become quickly outdated. Customer activity around ATMs,particularly at night, has invited criminals to steal money and injure customers, sometimes creatingliability for banks. Moreover, not all customers make use of these f
59、acilities due to a preference forpersonalized service, fear of crime, or unfamiliarity with how the machines work. Customereducation and better service pricing are two important tools that could help with these problemareas in the future. In addition, ATMs do not rank high in their ability to sell p
60、eripheral services.Some banks have found that there has been a sharp decline in their ability to sell other services.Finally, ATMs are not necessarily profitable for all banks. Because they are available 24 hours,some customers may make more frequent and smaller withdrawals from the machine than the
61、ywould with a human teller, driving up the costs. In addition, these same customers will often stilldemand a human teller to deposit their pay check, making the bank keep both tellers and ATMmachines.Whether ATM should carry a fee is rather controversial. Recently, two of the largest ATMnetworks hav
62、e decided to let owners of ATMs charge non-customers a surcharge. Several regionalhave begun to charge fees as well. These fees reflect the usage of ATMs. About 85% of all ATMtransactions consist of cash withdrawals and only about 10 percent represent incoming deposits.In addition, in many places, A
63、TM usage has declined as customers pass over ATMs in favor ofcredit and debit cards, onsite terminals and the internet.4-19.What are self-service terminals and what advantages do they have for financial institutionsand their customersSelf-service terminals include ATMs and other computer-based limit
64、ed-service facilities thatpermit a customer to call up information about his or her account and recent transactions with theinstitution or information about different services that the customer might be interested inpurchasing. Many are accessible 24 hours a day or are easier to get to rather than w
65、ait for the helpof personnel. They can save on resources by saving on staff time. Many institutions are addingtelephones and video screens so that customers with problems can dial up an employee day ornight with problems. This is also saving money because they can avoid duplication of staff at eachb
66、ranch.4-20.What financial services are currently available from banks on the internet What problemshave been encountered in trying to offer internet servicesCustomers can make payments, check on account balances, move funds between accounts and getapplications for loans, deposits and other services.
67、 In addition banks can advertise on the web.Some of the problems include protecting customers privacy and heading off crime. In addition,the web does not make it easy for a bank to get to know their customers personally. The cost mayalso be prohibitive to some customers.4-21.How can financial firms
68、better promote internet servicesThey need to emphasize the safety of their internet services. They need to promote their homepage at every opportunity and update it frequently to keep customers interest. They need tosurvey customers about their satisfaction with the services and encourage dialogue v
69、ia e-mail toresolve problems. They can also provide programs to download to act as screen savers (andadvertisements) and also information about the institution and the services it provides.Problems4-1.A group of businessmen and women from the town of Mathews are considering filing anapplication with
70、 the state banking commission to charter a new bank. Due to a lack of currentbanking facilities within a 10-mile radius of the community, the organizing group estimates thatthe initial banking facility would cost about $ million to build along with another $700,000 in otherorganizing expenses and wo
71、uld last for about 20 years. Total revenues are projected to be$510,000 the first year, while total operating expenses are projected to reach $180,000 in year 1.Revenues are expected to increase 6 percent annually after the first year, while expenses will growan estimated 5 percent annually after ye
72、ar 1. If the organizers require a minimum of a 10 percentannual rate of return on their investment of capital in the proposed new bank, are they likely toproceed with their charter application given the above estimatesYearRevenuesOp ExpenseNet Profits1$510,000$180,000$330,0002$540,600$189,000$351,60
73、03$573,036$198,450$374,5864$607,418$208,373$399,0465$643,863$218,791$425,0726$682,495$229,731$452,7647$723,445$241,217$482,2288$766,851$253,278$513,5739$812,863$265,942$546,92110$861,634$279,239$582,39511$913,332$293,201$620,13112$968,132$307,861$660,27113$1,026,220$323,254$702,96614$1,087,793$339,4
74、17$748,37715$1,153,061$356,388$796,67316$1,222,245$374,207$848,03817$1,295,579$392,917$902,66218$1,373,314$412,563$960,75119$1,455,713$433,191$1,022,52220$1,543,056$454,851$1,088,205$3,900,000Initial InvestmentRequired Rate of Return$4,491,642$591,642Given the above information, the organizers are l
75、ikely to proceed given that the net present valueof this investment is positive. The return they are going to earn is greater than the 10% they needto earn.4-2.Andover Savings Bank is considering the establishment of a new branch office at thecorner of Lafayette and Connecticut Avenues. The savings
76、associations Economics Departmentprojects annual operating revenues of $ million from services sold to generate fee income andannual branching operating expenses of $880,000. The cost of procuring the property is $ millionand branch construction will total an estimated $ million; the facility is exp
77、ected to last 16 years. Ifthe savings bank has a minimum acceptable rate of return on its invested capital of 12 percent, willAndover likely proceed with this branch office projectYear12345678910111213141516RevenuesOp ExpensesNet Profits$1,750,000$880,000$870,000$1,750,000$880,000$870,000$1,750,000$
78、880,000$870,000$1,750,000$880,000$870,000$1,750,000$880,000$870,000$1,750,000$880,000$870,000$1,750,000$880,000$870,000$1,750,000$880,000$870,000$1,750,000$880,000$870,000$1,750,000$880,000$870,000$1,750,000$880,000$870,000$1,750,000$880,000$870,000$1,750,000$880,000$870,000$1,750,000$880,000$870,00
79、0$1,750,000$880,000$870,000$1,750,000$880,000$870,000Present Value of Future CashFlowsNet Present Value of Investment$4,820,000Initial InvestmentRequired Rate of ReturnPresent Value of Future CashFlowsNet Present Value of Investment$6,067,368$1,247,368Andover is likely to proceed with this project b
80、ecause the net present value is positive. This meansthat the interest rate that Andover will earn on this project is higher than the 12% they need to earn.4-3.Jackson Bank of Commerce estimates that building a new branch office in the newlydeveloped Guidar residential township will yield an annual e
81、xpected return of 13 percent with anestimated standard deviation of 5 percent. The banks marketing department estimates that cashflows from the proposed Guidar branch will be mildly correlated (with a correlation coefficient of+ with the banks other sources of cash flow. The expected annual return f
82、rom the banks existingfacilities and other assets is 10 percent with a standard deviation of 3 percent. The branch willrepresent just 10 percent of Jacksons total assets. Will the proposed branch increase Sullivansoverall rate of return Its overall riskThe estimated total rate of return would be:E (
83、R) = (13%) + (10%) = %The risk attached to this overall return rate would be:Thus % and the branch will slightly increase the banks expected return but slightly decrease itsoverall risk. The bank should proceed with this project.4-4.The following statistics and estimates were compiled by First Savin
84、gs Bank of Talbotregarding a proposed new branch office and the bank itself:Branch Office Expected Return16%Standard Deviation of Return= 7%Banks overall expected return=10%Standard deviation of banks return= 3%Branch Asset Value as a Percentof Total Bank Assets=15%Correlation of Cash Flows=+What wi
85、ll happen to the Talbots total expected return and overall risk if the proposed new branchis adoptedThe banks total expected return is:E (R) = (16%) + (10%)=%The banks risk exposure is:And thus.0301 or 3.01%The proposed project raises the savings banks expected return slightly and does not affect th
86、e riskof the bank. This is a good project.4-5.First National Bank of Yukon is considering installing 3 ATMs in its westside branch. Thenew machines are expected to cost $48,000 apiece. Installation costs will amount to about $16,000per machine. Each machine has a projected useful life of 10 years. D
87、ue to rapid growth in thewestside district these three machines are expected to handle 180,000 transactions per year. Onaverage, each cash transaction is expected to save $ per transaction in check processing costs. IfFirst National has a 12% cost of capital, should the bank proceed with this invest
88、ment projectYearSavings1$57,600(.32*180,000)2$57,6003$57,6004$57,6005$57,6006$57,6007$57,6008$57,6009$57,60010$57,600Initial InvestmentRequired Rate of Return192000(48,000*3+16,000*3)$325,$133,The net present value of this project is positive. First National Bank of Yukon should add theATM machines
89、to the Westside.Present Value of Future CashFlowsNet Present Value4-6.First State Security Bank is planning to set up its own web page to advertise its location andservices on the Internet and to offer customers selected service options, such as paying recurringhousehold bills, verification of accou
90、nt balances, and dispensing deposit account and loanapplication forms. What factors should First State take into account as it plans its own web pageand Internet service menu How can the bank effectively differentiate itself from other bankscurrently present on the Internet How might the bank be abl
91、e to involve its own customers indesigning its web site and pricing its Internet service packageThe bank should remember that while the internet is a relatively low cost way of expanding andallows customers to find the bank rather than the bank having to find customers, there are seriousconcerns abo
92、ut privacy. In addition, the Internet is not limited by geography and while there arethousands of potential customers, there are also many financial institutions around the worldcompeting for customer deposits and loans. The bank needs to be aware that there are many bankweb pages out there and that
93、 they will need to invest in employees with the technical expertise tomanage the new web site well. One of the first things the bank needs to do is to take steps toprotect its customers and let its customers know what its privacy and security policies are.Another step the bank can take is to start w
94、ith a customer survey to find out what its customerswant and need from the banks Internet services. They can run this as a contest and give awaysome small items to the customer with the best ideas for the web page and Internet service. Thisshould help get customers involved in the design and implementation of the web page and mayhelp the bank start building an online customer base.
