A Dynamic Evaluation of Blockers to Risk-Taking and Growth and the Agent's Employment Cycle
Samuel B. Bulmash
University of South Florida - Finance Department
January 16, 2006
This paper examines some of the implications that technological innovations have had on the retail side of the commercial banking industry in the recent decade. These innovations enabled financial institutions to overcome previous constraining "blockages" to growth and costs savings, such as geographic distances and volume processing obstacles but at the same time also removed many of the previous "blockages" that prevented competitors from invading their turf. The nature of such constraints (or "blockages") has changed as technology changed, and the financial intermediation delivery has changed with it. Although this paper focuses on the innovations relevant to retail banking, many of the implications can be of interest to other aspects of the financial services industry outside the scope here.
While enabling a greater variety of services and improved productivity, technology poses challenges to society since non-banks are often less regulated, compared to depository institutions. As noted in recent studies, despite the free spill-over of information, technology has the potential to increase monopolistic powers of institutions that develop advantages in the use of propriety information and technology.
This paper reviews some recent innovations in the financial services industry that have a further potential role in the continuation of the transformation process. One needs to become familiar with them before one can proceed with further contemplation of the challenges that they pose to the banking and non-banking industries. This paper also addresses significant gaps in existing knowledge about the Internet banking landscape. Using information drawn from a survey of national bank examiners, it finds that as early as 5 years ago, while only 20 percent of national banks offered Internet banking in Q3 1999, these transactional Internet banks accounted for 84 percent of the total number of small deposit accounts. Today both numbers are already much higher. An estimated 45 percent of all national banks were offering Internet banking by the beginning of 2001, and today most already do. While most of the growth in new Internet banking was be due to small banks coming online, almost half of all national banks in 2001 had no plans to offer Internet services, while today the majority do. However, Internet was just a step and other products and service are emerging, and Banking institutions are becoming more challenged by those new competitors.
Number of Pages in PDF File: 39
Keywords: Corporate governance, Compensation and payments packages, Human Capital contracts
JEL Classification: G34, J33, J41
Date posted: January 18, 2006