Commercial Banking    Industry Overview
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Industry Overview
Inthe most basic terms, commercial banks take deposits from individualand institutional customers, which they then use to extend credit toother customers. They make money by earning more in interest fromborrowers than they pay in interest to those whose deposits theyaccept. They’re different from investment banks and brokerages in thatthose kinds of institutions focus on underwriting, selling, and tradingcorporate and municipal securities.

Most of us maintainchecking accounts at commercial banks and use their ATMs. The money wedeposit in our neighborhood bank branch or credit union supportseconomic activity through business loans, mortgages, auto loans, andhome repair loans. Banks also provide loans in the form of credit cardcharges, and render local services including safe deposit, notary, andmerchant banking. The bank branch or credit union office remains thecornerstone of Main Street economic life.

Banks have beenundergoing rapid change over the past decade or so. Traditionallyconservative businesses, most large banks now offer banking servicesover the Web. Branch banks have proliferated as well, as banks likeWashington Mutual attempt to become as ubiquitous as 7-Eleven stores.The 1999 repeal of the Glass-Steagall Act, which limited the businessescommercial banks could operate in, created huge new areas of businessas well. Many commercial banks have gone into nontraditional commercialbanking businesses such as selling insurance products and securities.



Trends



New Electronic-Payment Options
Foryears, there were just three main means by which most consumers andbusinesses purchased goods and services: They paid in cash, wrote acheck, or, if the purchase was sufficiently large, they charged thepurchase to a credit card. Thanks to technology, purchasers now enjoy awhole host of payment options – and banks enjoy a number of new revenuestreams, thanks to the fees and interest charges associated with thenew payment options. For example, most big banks now offer prepaidMasterCard and Visa cards. Debit cards, which, when used, withdrawmoney directly from the cardholder’s bank account, are anotherrelatively new product. Online payment technologies allow consumers andbusinesses to transfer money to vendors from whom they make purchasesvia the Internet. And then there are micropayments; where, in the past,vendors would only accept credit cards for a certain minimumtransaction amount, today it’s becoming more and more common forpurchasers to use credit cards and other electronic-payment options forrelatively minor purchases, like music downloads and fast-foodpurchases.

Trouble in Credit-Card Land
Whilecredit cards have been one of the biggest sources of retail-bankingrevenue growth in recent decades, business hasn’t been without itsdownsides for card issuers in recent years. Legal actions brought bypurchasers and vendors alike have reduced card issuers’ bottom lines.On the consumer side of the equation, for instance, American Expresshas had to settle class-action charges that it charged customersimproperly for foreign-currency transactions (similar charges arepending against Visa and MasterCard and banks that issued those cards).Meanwhile, vendors who accept payment in the form of credit cards havebeen battling to lower the fees they pay to the credit cardassociations; to settle charges brought by merchants, the cardassociations have paid the merchants billions of dollars and loweredcertain fees.

Consolidation
Fordecades, banks profited by simply holding customers' money and chargingthem check-writing fees and interest on loans. Jobs were well definedand stable, and the paths to promotion were clear and secure. Notanymore. Consolidation, competition, and technological change areshaking the industry to its core, forcing layoffs while creatingopportunity.

Since 1995, more than 200 large and smallbanks have merged, with an eye on building market share and/orincreasing economies of scale. Today, a handful of recentlyconsolidated giants—Citibank, Bank of America, J.P. MorganChase—dominate the banking industry. The new behemoths are entering newmarkets, while replacing service personnel with online and othertechnologies. However, hiring by a growing number of nonbankscompensates for this trend to a degree. These firms, which arepioneering new ways of delivering financial services, include MBNA andCapital One, which are credit card lenders, as well as transactionprocessing and data services companies like First Data and Fiserv.

Deregulation
TheGlass-Steagall Act, passed by Congress in 1933, served as the backboneof banking regulation. During the late '90s, however, banks and otherfinancial institutions found ways around the restrictions placed onthem by Glass-Steagall and related legislation. Finally, in late 1999,Glass-Steagall was repealed, eliminating the legal framework forDepression-era boundaries for financial services firms. This hascreated new opportunities for small and large banks alike, whichcontinue to shakeup the banking landscape.

Risk
Recordlevels of consumer dept and personal bankruptcies, the prospect thatthe real estate bubble will pop, and rising interest rates and oilprices all threaten to dampen prospects for commercial banks. Many fearthat the dueling budget and trade deficits in the United States aren’tsustainable. Protecting customer information and transaction data fromcyber threats is another area banks are concerned with, and many areworking to upgrade their enterprise protections. Because problems inthe market inevitably affect banks, many are putting new emphasis onupgrading risk management capabilities in case something goes awry.



How It Breaks Down



Themost important distinction for job seekers to keep in mind is thedistinction between regional banks and the big global ones. Here, we'vebroken down the industry by type of banking, rather than size ofplayer, since banks are increasingly adding new services to their arrayof traditional ones.  

Consumer or Retail Banking
Thisis what most people think of when they think of banking: A small tomid-sized branch with tellers and platform officers—the men and womenin suits sitting at the nice wooden desks with pen sets—to handlecustomers' day-to-day needs. Although thousands of small communitybanks, credit unions, and savings institutions still exist, employmentopportunities in this sector are increasingly coming from a fewmegaplayers such as Citibank, Bank of America, and J.P. Morgan Chase,which have built national—and even international—banking operations.

Inaddition to extending their consumer-banking operations, many of thelarger banks have added to their investment banking and assetmanagement capabilities. So, make sure you’re applying to the rightpart of a large diversified organization.

Business or Corporate Banking
Manyof the players in this group are the same ones in the consumer-bankingbusiness; others you'll find on Wall Street, not Main Street. At thehighest level, the larger players (Wells Fargo and Wachovia are twonames to add to the list of megaplayers above) provide a wide range ofadvisory and transaction-management services to corporate clients.Depending on which institution and activity area you join, the work canresemble branch banking or investment banking.

Securities and Investments
Traditionally,this field has been the domain of a few Wall Street firms. However, asfederal regulations have eased, many of the biggest commercial banks,including Bank of America, Citibank, and J.P. Morgan Chase, haveaggressively added investment banking and asset management activitiesto their portfolios. For anyone interested in corporate finance,securities underwriting, and asset management, many of these firmsoffer an attractive option. Be aware, though, that hiring for thesepositions is frequently done separately from that for corporate andconsumer banking.