1. The United States has a comparatively large but declining number of banks.

a. The large number of banks in the United States is explained by restrictions on branching, both within and across state lines, that were imposed by the federal government in 1927.

b. The large number of banks in the United States is a sign of an anticompetitive legal environment.

c. Since 1997, banks have been permitted to operate in more than one state. This change has increased competition and driven many small, inefficient banks out of business.

d. Between 1933 and 1999, banks were prohibited from engaging in the securities and insurance businesses.

e. Banking has been expanding not just across state boundaries but across international boundaries.

i. Many U.S. banks operate abroad, and a large number of foreign banks do business in the United States.

ii. Eurodollars—dollar deposits in foreign banks—play an important part in the international financial system.

f. The financial industry is constantly evolving. With changes in regulations, financial services can now be provided in two ways:

i. Through a large universal bank, which provides all the services anyone could possibly need.

ii. Through small specialized firms, which supply a limited number of services at a low price.