DEPOSITORY SERVICES AS A LIFELINE FOR BANKS

Open Access
Author:
Caraballo, Alexandra Fabiola
Area of Honors:
Finance
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • James Alan Miles, Thesis Supervisor
  • James Alan Miles, Honors Advisor
  • Timothy T Simin, Faculty Reader
Keywords:
  • investment baking services
  • depository services
  • corporate structure
  • Glass-Steagall Act
Abstract:
The focus of this thesis is to understand the corporate structure of large banks, specifically how much of their revenues are affected by its participation in depository services verses investment banking services, and how this balance could help the bank survive periods when the economy is down. Four major banks will be analyzed throughout this thesis including JPMorgan Chase, Bank of America, Goldman Sachs and Lehman Brothers. This thesis will also look at the economic landscape and regulatory environment that set the stage for the Great Depression and led to the passing of the Glass-Steagall Act in the 1930s in order to understand the possible downside of offering both depository and investment banking services. A look at the Federal Reserve and the effect it has on banks will also be reviewed in order to comprehend the regulatory environment that could affect the stability of these banks during recessionary periods. For each bank this thesis will look at the revenue figures for a span of six years and compare the percentage of revenues that are generated from depository and investment banking services. For JPMorgan Chase and Bank of America, revenue streams from deposits and investment banking are fairly stable with evident changes attributed to the economic recession of 2008 and changes in corporate structures such as with Bank of America’s acquisition of Merrill Lynch. Goldman Sachs presents an interesting case as it created an internal deposit bank that does not generate new revenue, suggesting that a relationship with the Federal Reserve may be just as important as actually offering deposits. Lehman Brothers, with its bankruptcy, shows that indeed having a depository component of a bank’s business is important to the survivorship of a bank if not for the revenue stream is generates then for the legal monitoring of the bank.