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Establishing New Banks, Branches & ATMs

Establishing New Banks, Branches & ATMs. Chapter 4. Federal (National) Bank. Brings added prestige More Costly Subject to stricter regulatory framework Larger deposits/loan Technical assistance from national bank authorities Part of Federal Reserve System

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Establishing New Banks, Branches & ATMs

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  1. Establishing New Banks, Branches & ATMs Chapter 4

  2. Federal (National) Bank • Brings added prestige • More Costly • Subject to stricter regulatory framework • Larger deposits/loan • Technical assistance from national bank authorities • Part of Federal Reserve System • Federal banking rules can pre-empt (prevent) state laws

  3. State Bank • Easier to secure state charter • Less costly • Not part of federal reserve system • Subject to state law • Customized service

  4. Factors affecting regulatory decisions regarding Chartering a New Bank • Target market (service area) • Competing financial institutions within the service area • Sizes of business in the service area • Level of competition • Traffic pattern • Population density, growth, income, age, education, occupation etc. • Financial history of the service area • Ownership of the stocks (capital) • Experience of the organizers • Projected deposits, loans, revenues and expenses (quality of the projection)

  5. Chartering a New Bank • External Factors • Internal Factors

  6. External Factors • Level & Growth of Economic Activity • Need for a New Financial Institution • Level of Competition

  7. Internal Factors • Qualification & Quality of Management • Experience • Contacts

  8. Factors Affecting Sites for Full-Service Branches • Traffic count • Business Activities • Population age, density and growth • Population per branch • Financial-service competitor

  9. Establishing a Full-Service Branch(Capital Budgeting Decision) • Expected Rate of Return - Compare the expected rate of return of the branch with the required/acceptable rate of return or with cost of capital of the bank • Geographic Diversification - New branch increases or decreases the return and risk of the bank

  10. Decision to Install a New ATM (Capital Budgeting Decision) • NPV of New ATM = Present value of the stream of cash savings from new ATM discounted at required return or cost of capital Minus (-) Initial cash outlay for the new ATM • Install ATM if the NPV is Positive

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