Question

. What factors have caused the decrease in loan volume relative to other assets on the balance sheets of commercial banks? How has each of these factors been related to the change and development of the financial services industry during the 1990s and 2000s? What strategic changes have banks implemented to deal with changes in the financial services environment?

Answer 1

Answer:-

Corporations have utilized the commercial paper markets with increased frequency rather than borrow from banks. In addition, many banks have sold loans packages directly into the capital markets(securitization) as a method to reduce balance sheet risks and to improve liquidity.

Finally, the decrease in loan volume the early 1990s and 2000s was due in part to the short reccession in 2001 and the much stronger recession and financial crisis in 2007-2009

As deregulation of the financial services industry continued during the 1990s. the position of banks as the primary financial services continued to erode. Banks of all sizes have increased the use of off-balance sheet activities in an effort to generate additional fee income.

Letters of credit of credit, futures, options, swaps and other derivative products are not reflected on the balance sheet, but do provide fee income for the banks.