A comparative analysis of the US and EU retail banking markets - Wsbi

More documents

Recommendations

Info

Furthermore, the average outstanding credit per capita in 2004 was equivalent to $7,290. Some sources reveal that within the wide range of products developed in the consumer credit market, credit cards are one of the most common forms of consumer credit in the US. In 2004 there were more than 4,000 credit cards per 1,000 inhabitants 258 , which translates to an average of four credit cards per person. Table 18: Evolution of consumer credit in the US, 1995-2004 Annual growth rate Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 (2000-2004) Overall outstanding volume (in billions of US $) 1,168 1,272 1,342 1,439 1,553 1,731 1,871 1,954 2,047 2,141 5% Overall outstanding volume as a % of US GDP 16% 16% 16% 16% 18% 19% 19% 18% 18% 17% -2% Outstanding volume per capita (in US $) 4,388 4,723 4,921 5,217 5,566 6,135 6,562 6,787 7,039 7,290 4% Source: ESBG calculations based on data from the Board of Governors of the Federal Reserve System: "Flow of Funds Accounts of the United States, 1995-2004", June 9, 2005, the US Census Bureau for the population and Eurostat for the GDP. 6.2.1.1.2 Regulatory framework overview In the US consumer credit is regulated at both federal and state level. Unless a state law conflicts with a particular federal law, the state law usually applies 259 . At federal level, a large number of laws apply to consumer credit transactions in general (leasing, mortgage credit, credit cards, personal loans, etc). Federal laws which regulate consumer credit include the following laws 260 : Consumer Leasing Act (1976), Equal Credit Opportunity Act (1974), Fair Credit and Charge Card Disclosure Act (1988), Fair Credit Billing Act (1974), Fair Debt Collection Practices Act (1977), Federal Trade Commission Credit Practice Rule (1985), Home Equity Loan Consumer Protection Act (1988), Truth in Lending Act (1968), Bankruptcy Reform Act (1979), Right to Financial Privacy Act (1979). It should be noted that some of the mentioned laws equally apply to housing loans and that nearly all these laws have been modified on several occasions. There are also numerous laws regulating consumer credit at state level and while there is considerable variation among state laws governing consumer credit, most of them are based on federal laws. Various versions of state laws cover several standard areas (e.g. information disclosure). To take the example of the State of California, there have been a large number of laws enacted such as Consumer Finance Lenders Law, Consumer Contract Awareness Act, Consumer Credit Contracts Law, Investigative Consumer Reporting Agencies, Retail Instalment Sales, Rental-Purchase Act, Credit Denial Disclosure Act, Credit Card Disclosure Act, Credit Services Act, Credit Card Act and Fair and Debt Collection Practices Act 261 . States are also entitled to introduce usury or ceiling rate laws establishing the maximum rate that a lender can charge for consumer credit. The maximum interest rates vary from state to state and depend upon the type of credit transaction involved. For example, at the end of the 1970s, 37 states had some kind of interest rate ceiling on credit cards with Minnesota having the lowest interest ceiling at 8% while two states had limits above 18% 262 . 258 Figure calculated by the ESBG based on figures from “The Future of Banking in America” by Neil B. Murphy (FDIC Banking Review, 2004). 259 See chapter on regulatory comparison, section on division of legislative powers in the US. 260 The list of laws is intended to be as complete as possible but it might not be exhaustive. 261 Information obtained from www.yourcredit.com. 262 FDIC Bank Trends, March 1998. 104
In that period, this became an issue for the industry when inflation rates were very high, and in some states the rate ceilings were less than banks’ cost of funds 263 . Restrictive usury laws limited the volume of credit card lending, thereby limiting the income potential of lenders, and leading lenders to extend credit only to higher quality borrowers, shutting out lower quality borrowers from the market. This situation resulted in less credit availability and lower charge-offs 264 . In a landmark court decision in 1978 265 , the US Supreme Court ruled that the lender’s location determined the operative state usury ceiling no matter where the customer resided – even if the state of residence of the consumer would have a lower usury ceiling. This gave incentive to large card issuers to find a lender-friendly state in which to establish national operations. The Court ruling of 1978 brought about liberalisation of interest rates which led to a significant expansion of credit availability which facilitated credit to higher-risk borrowers. According to the FDIC, the liberalisation of interest rates also resulted in higher credit prices for consumers. Moreover, it had an important impact on US personal bankruptcy rates which rose from less than one per thousand heads of population in the early 1970s to almost five per thousand heads of population in 1997 266 . Under the federal legislative framework, the US Consumer Credit Protection Act of 1968, which is part of the US Code (Title 15, Chapter 41), contains in its Title I – Consumer Credit Disclosure – core provisions on consumer credit, in particular regarding general provisions, credit transactions, credit advertising, credit billing and consumer leasing 267 . The Consumer Credit Protection Act is considered to be landmark legislation. For the first time, creditors had to state the cost of borrowing in a common language so that the consumer could understand what the charges are, compare cost and shop for the best deal. The Act protects consumers defined as natural persons acting in a transaction for primarily personal, family or households purposes 268 . A good number of transactions are exempted from the Consumer Credit Protection Act, for example credit transactions of more than $25,000 269 . 6.2.1.1.2 Information disclosure and duty to advise Among the numerous laws regulating consumer credit in general, the main set of rules dealing with information disclosure is the Truth in Lending Act from 1969. This Act has been implemented by Regulation Z (adopted by the Federal Reserve Board) and integrated as Title 1 of the Consumer Credit Protection Act. Regulation Z has been amended in numerous occasions. The main purpose of the Regulation is to prevent abuses in consumer credit cost disclosure and to require uniformity in such disclosures. Regulation Z provides two different information disclosure regimes depending on whether the credit is an open-end or close-end type of credit. An openend credit is “when the creditor reasonably considers repeated transactions, which prescribe the terms of such transactions and which provide for a finance charge which may be computed from time to time on the outstanding unpaid balance” 270 , e.g. credit cards and home equity release credit lines are openend credits. Closed-end credit encompasses all consumer credit not extended under an open-end plan. Under closed-end credit plans, the consumer receives a complete disclosure of the costs associated with the credit transaction before the transaction is actually consummated. 263 “The Future of Banking in America” by Neil B.Murphy (FDIC Banking Review, 2004), Page. 77. 264 FDIC Bank Trends, March 1998. See also studies by Canner and Fergus (1987) and Villegas (1989). 265 US Supreme Court case “Marquette National Bank of Minneapolis vs. First Omaha Services” 266 FDIC report on “The effect of Consumer Interest Rate Deregulation on Credit Card Volumes, Charge-offs, and the Personal Bankruptcy Rate”, March 1998. 267 Sections 101-181 of the US Code. 268 See definition under General Provisions of the Consumer Credit Disclosure Act – Consumer Credit Protection Act. 269 Exemptions listed under Section 104 of the Consumer Credit Protection Act – Title 1, also include transactions involving extensions of credit primarily for business, commercial, or agricultural purposes, or to government or governmental agencies or instrumentalities or to organisations; transactions in securities or commodities accounts by a broker-dealer registered with the Securities and Exchange Commission; credit transactions, other than those in which a security interest is or will be acquired in real property, or in personal property used or expected to be used as the principal dwelling of the consumer, in which the total amount financed exceeds $25,000; transactions under public utility tariffs, if the Board determines that a State regulatory body regulates the charges for the public utility services involved, the charges for delayed payment, and any discount allowed for early payment; transactions for which the Board (the Federal Reserve Board), by rule, determines that coverage under this title is not necessary to carry out the purposes of this title and loans made, insured, or guaranteed pursuant to a program authorised by title IV of the Higher Education Act of 1965. 270 Definition provided by the Truth In Lending Act. 105
Page 1:
September 2006 RESEARCH A COMPARATI
Page 4 and 5:
IE UK FR BE NL LU DK DE SE CZ AT SL
Page 6 and 7:
The following WSBI/ESBG committees
Page 8 and 9:
4 Regulation and supervision compar
Page 10 and 11:
6.5 Issues of competition in retail
Page 12 and 13:
To finish, if we had to pick from a
Page 14 and 15:
In the US, credit institutions have
Page 16 and 17:
Following the same logic, the EU co
Page 18 and 19:
In that context, it is tempting to
Page 21 and 22:
3. INSTITUTIONAL COMPARISON 3.1 Sec
Page 23 and 24:
The market share of the US banking
Page 25 and 26:
FDIC-insured commercial banks are i
Page 27 and 28:
The subsidiary stock institution is
Page 29 and 30:
Regulatory reform over the past thi
Page 31 and 32:
State credit unions were first exem
Page 33 and 34:
There has however been much effort
Page 35 and 36:
3.2.2.2.2.2 Ownership and corporate
Page 37 and 38:
Hermann Schulze-Delitzsch and Fried
Page 39 and 40:
In contrast, building societies in
Page 41 and 42:
The commitment of savings banks is
Page 43 and 44:
4. REGULATION AND SUPERVISION COMPA
Page 45 and 46:
In addition, for regulations define
Page 47 and 48:
The European Parliament has to be k
Page 49 and 50:
In fact, it should be mentioned her
Page 51 and 52:
As far as coordination at the feder
Page 53 and 54: Despite the trend towards the estab
Page 55 and 56: Another important factor in the cho
Page 57 and 58: In the European Union, contrary to
Page 59 and 60: Although younger than CESR, both CE
Page 61 and 62: 4.2.5.1.1.1.1 Limitation of the geo
Page 63 and 64: 4.2.5.1.1.3 Recent trend: regulatio
Page 65 and 66: Another important common feature be
Page 67 and 68: The best execution rule was first m
Page 69 and 70: 4.3.2.2.4 National Market System ru
Page 71 and 72: The ISD set a basis for the develop
Page 73: Best execution rules exist in both
Page 76 and 77: The decline of savings institutions
Page 78 and 79: Relative to population, the Europea
Page 80 and 81: 5.2.2 Size of credit institutions 5
Page 82 and 83: 5.2.2.2 European Union In Europe, t
Page 84 and 85: 5.2.3 Concentration and consolidati
Page 86 and 87: 5.2.3.2 European Union Average CR5
Page 88 and 89: In terms of the nature of consolida
Page 90 and 91: 100% Graph 9: Structure of the asse
Page 92 and 93: In terms of growth of the volume of
Page 94 and 95: 5.3.2 Efficiency of credit institut
Page 96 and 97: Table 16: Evolution of the Return o
Page 98 and 99: Finally, looking at cost-income rat
Page 100 and 101: 9. The last couple of decades have
Page 102 and 103: 102
Page 106 and 107: Under an open-end credit, the credi
Page 108 and 109: Table 19: Evolution of outstanding
Page 110 and 111: 6.2.1.2.2 Regulatory framework over
Page 112 and 113: 6.2.1.3 Comparison 6.2.1.3.1 Size o
Page 114 and 115: In terms of market competition, the
Page 116 and 117: The residential mortgage market in
Page 118 and 119: Funding by retail deposits represen
Page 120 and 121: In sharp contrast, the US mortgage
Page 122 and 123: 6.2.3.1.2 Lenders to small business
Page 124 and 125: The securitisation process requires
Page 126 and 127: Factoring is also continuously gain
Page 128 and 129: 6.2.3.2.4 Securitisation of small b
Page 130 and 131: The above fears can hardly be allay
Page 132 and 133: - ACH credits and debits: the stati
Page 134 and 135: 6.3.2.1.2 Financial intermediaries
Page 136 and 137: It should be noted that two of the
Page 138 and 139: Assuming that technology, globalisa
Page 140 and 141: The report adds: “although it bou
Page 142 and 143: Graph 19: Use of different distribu
Page 144 and 145: In terms of funding of the business
Page 146 and 147: Since then, established banks have
Page 148 and 149: 148
Page 150 and 151: MoU Memorandum of Understanding OTC
Page 152 and 153: Annex 2: Statistical appendix Table
Page 154 and 155:
Table F: Share of US banking indust
Page 156 and 157:
Table L: Structure of the liabiliti
Page 158 and 159:
Table R: Number of ATMS in the EU a
Page 160 and 161:
F - Federal Deposit Insurance Corpo
Page 162 and 163:
162
show all

A comparative analysis of the US and EU retail banking markets - Wsbi

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?