Welcome to the Federal Reserve's free online training resource for bank directors.

How do banks make money? This is a deceivingly simple question. Bans make money by charging interest on loans, of course. In fact, there used to be a standard, tongue-in-cheek answer to this question: According to the 3-6-3 rule, bankers paid a 3 percent rate of interest on deposits, charged a 6 percent rate of interest on loans, and then headed to the golf course at 3 o clock.

In 1995, the Brookings Institution published a paper entitled "The Transformation of the U.S. Banking Industry: What a Long, Strange Trip It?s Been." Using a breathtaking array of facts and figures, the paper described in great detail the dramatic changes that had occurred in the U.S. commercial banking industry over the 15 years from 1979 to 1994.

This study examines credit card banks, subprime lenders, and Internet primary banks. Although numerically these institutions make up a small share of the financial services industry, their unique products and technologies have attracted considerable attention.

The U.S. banking system has long had a multitude of small institutions. This characteristic has been shaped by a number of factors. The dual banking system?that is, the coexistence (since the end of the Civil War) of both federal and state chartering?has fostered the creation of small banks, and the effect was reinforced by chartering regulations at both the national and state levels that were frequently permissive.

The U.S. banking system is unusual in consisting not only of some very large banks but also a large number of relatively small community banks.

We review how deregulation, technological advance, and increased competitive rivalry have affected the size and health of the U.S. community banking sector and the quality and availability of banking products and services.

The Federal Reserve has a strong interest in understanding issues facing community banks and in helping to make possible their continued participation in the nation's financial and payments systems.

The roughly 9.5 percent of all U.S. families that are without some type of transaction account (unbanked) are disproportionately represented by minorities.

In 2002:IIQ, FDIC-insured depository institutions reported net income of $23.4 billion, representing a 7.9% increase from the previous quarter.

Several trends in the financial industry could have weakened the competitiveness of small banks in recent years. Despite those challenges, small banks have grown more rapidly than larger banks over the period from 1985 to 2001, and their profitability has been sustained at high levels.

A de novo enters a market based on expectated profitability. What are the factors to consider? Do mergers matter?

The banking industry has undergone profound changes during the last decade. The most obvious change has been the large number of bank mergers, which have increased both the average size of banks and the area over which they operate.