in the industry is through Internet banking, because of its low cost.3.Firms offering substitute products:This is not really an issue within the banking industry, because there aren't really any legal alternatives, except buying a safe and borrowing from a loan shark4.Competitive pressures stemming from supplier and buyer bargaining power:I grouped these two categories together because in the banking industry the buyers are the suppliers and vice versa, so I might as well just discuss the situation as a whole. Interest rates are the single most important aspect of bank profitability they are the bargaining power. Most bank profits are derived from net interest income. This is interest income received on loans minus interest expense for borrowed funds. Interest rates determine the amount of money a bank can earn. Another measure is a banks' net interest margin which is a bank's net interest income divided by its average earning assets. This is a common measure of a bank's ability to squeeze profits from its loans.When interest rates fall, they have a positive effect on a bank. First, net interest margin can expand. Second, the value of a bank's fixed rate of investment portfolio is enhanced by declining rates, since a bond with a higher stated interest rate becomes more valuable as prevailing rates drop. Third, falling rates lower the cost of credit, which stimulates loan demand and reduces delinquency rates.Opportunities: 1.Because of the increasing amount of technology Internet banking will begin to replace traditional banking, thus cutting personnel costs. 2.Incorporating investment banking into the banking industry, as some major companies are doing, lets the bank increase profits and promote economic growth while improving company image. Threats:1.An increase in interest rates causing a decline in bank activity.2.A collapse of the Fed leading to bank failures, a repeat of the crash of 1929. 3.A decline in the US economy leadin...
