Word: nonbank
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...business community has an even greater variety of nonbank choices to meets its financing needs. Blue-chip companies now turn elsewhere to borrow most of their money. Firms can raise short-term cash at lower rates by selling commercial paper; for longer-term money, they can issue bonds. Even small and medium-size firms, a vital source of business for banks, have many borrowing sources. The financing arms of General Electric, General Motors and Ford, which offer loans to businesses, are among the 10 largest financial institutions...
...role to play, but a far smaller one, since they are no longer the only game in town. Beset with an overhang of poor-quality loans from the 1980s and new challenges in all the bread-and-butter businesses, banks have lost their financial edge -- and then some. "The nonbank companies have smelled blood in the banking system, and they have moved in to gain market share," says Edward Yardeni, chief economist for the Wall Street firm C.J. Lawrence. "To survive, the banks are going to have to restructure, repair their balance sheets and drop in number closer...
...only one- fourth that of all Europe, about half that of Great Britain and roughly equal to that of the Netherlands. Nor was it any more one-sided than that of the Dutch. Neither Japan nor any other country imminently threatens to gain economic control over the U.S., whose nonbank multinational corporations have assets totaling well over $5 trillion...
...automakers' financial forays have alarmed traditional bankers, who complain that they are unfairly hobbled by federal laws and regulations. For example, the law generally restricts interstate branching by banks. But nonbank competitors, such as GM and Ford, can offer loans anywhere they please. Says Donald Senterfitt, president of the American Bankers Association: "We are living in a financial-services world that is half slave and half free, and the banks are the slaves." His solution: speed up banking deregulation...
...spread of financial institutions that function very much as real banks do. These companies have been able to circumvent the law because they do not fit the legal definition of a bank: an institution that takes deposits that can be withdrawn on demand and makes commercial loans. Known as "nonbank banks," the newcomers generally take deposits or make loans, but do not do both. About 80 of these limited-service banks have sprung up across...