An Analysis of US Commercial Banking Sector of USAs Banking Industry Essay

An Analysis of US Commercial Banking Sector of USAs Banking Industry - Essay Example It is evident from the study that strong rumour is haunting the global banking industry that another banking crisis may spearhead in the wake of recent crisis in EU, and that may impact US banking industry also. In response to the scenario in Europe, the financial markets in US are demonstrating mounting signs of risk aversion and volatility. The outcome of the 2008 financial turmoil has prolonged to weigh on the recovery of economy; the credit rate downgrade and the recent debt ceiling fiasco have surmounted anxieties of financial volatility. Nonetheless, the US commercial banks as compared to their counterparts in Europe have more expanded portfolios and retain a much lesser share of government bonds. Moreover, US government backing and deposit insurance offer a vibrant backbone in the case of future bank failures as depositors prolong to have confidence in the capability of the US government to meet its commitments if there is a run -on -banks. This can be corroborated from the co ntemporary extreme low treasury yields. Commercial banking can be described as fiscal mediators with towering leverage, i.e. a comparatively higher ratio of short-term debt in the guise of deposits with a moderately little portion of equity. Large number of individual customers and business might have contributed the deposits to the bank. Thus, so pooled funds of commercial banks are accustomed to advance loans to individuals and businesses. (Iannotta 2010:2) In USA, commercial banks are institutions, which function as a financial mediator between borrowers and savers – thus, grouping the savings of many depositors and lending the same to eligible borrowers. Commercial banks thrive with a little margin as there will not much difference between the interest rate paid to the depositors and interest rate charged to the borrowers. To minimise the risk, commercial banks have established loan