Banking Innovations

Report Outline
Entrance of Banks Into New Fields
Development of the Banking System
Competition in the Banking Business

Entrance of Banks Into New Fields

The banking business in the United States is growing at a rate that pleases even the bankers. Rising interest rates pushed up the earnings of commercial banks 10 to 15 per cent in the first quarter of 1968; during the past five years, those earnings have increased annually at an average rate of more than 7 per cent. While leading bankers are optimistic about the industry's prospects for steady growth, they are careful to make a distinction between banks which cling to traditional banking practices and banks which innovate.

During the 20-year period 1946–66, total deposits of commercial banks in the United States rose by 120 per cent. Although the volume of bank loans to business enterprises mounted in that period, the share of the bank loan total going to business—which amounted to 56 per cent in 1923—had declined to 45 per cent by 1966. Consumer loans, which were relatively unimportant 40 years earlier, accounted for 22.6 per cent of the total in 1966. Clearly, the banks had discovered the private customer and were engaged in active competition for his business.

Bankers now appear eager to replace the image of the yes-or-no traditionalist with that of the helpful innovator. Entry of banks into new fields, and particularly the trend toward a “checkless society,” show that the change is more than a matter of public relations gimmicks. One management consultant has asserted that “The difference between the well-managed banks and the ones whose managements can't come to grips with change is going to become wider and wider.”