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Banking Sector 2007

U.S. Market Overview

The U.S. banking sector is deep, competitive, and supported by a strong economy and prudent supervision. The banking industry serves a diverse market, providing wholesale and retail financial services to corporations, small and medium-sized enterprises (SMEs), and individuals. The banking sector includes deposit-taking commercial banks and thrifts. The U.S. banking sector has mirrored consolidation trends in other major economies but is still relatively unique in its significant number of regional and community banks.

According to the World Bank the U.S. banking sector provided credit equal to 215 percent of GDP in 2004, more than for most OECD and developing countries. Globally, banking is one of the more mature industries, with global banking growth of 6 percent in 2004 (according to a June 2006 USITC report). The United States’ status as a leader in its domestic and international development of the banking sector, and the expected steady but slow growth of banking globally, suggests that room for revenue growth through new branches is only moderate. In the United States, however, most regional and large U.S. banks have successfully increased revenue growth through consolidation.

From end of year 1998-2005 foreign banks’ assets in the U.S. market grew by 77 percent (versus 67 percent for all FDIC insured assets), with foreign banks currently holding approximately 19 percent of total U.S. banking assets (U.S. Federal Reserve). Foreign banking investment largely reflects inflow from large multinational banks with appropriate experience, skills, capital and a customer-base, which enhances the desirability of expanding cross-border investments.

The long-term demand for banking services in the U.S. market is likely to continue to increase at a relatively stable rate. Compared to other developed economies, the U.S. banking sector remains relatively fragmented, suggesting that that further consolidation of the industry through mergers and acquisitions is a real possibility. U.S. banks are standard-bearers in terms of both profitability and efficiency, and the U.S. banking market is highly competitive.