PNC Financial Services

Introduction 

The financial and banking sector is one of the critical drivers of success within different economies around the world, as it acts as a contributing sector to the improvements in economic positioning. The segments play an integral role in designing the future of an economy in any given region, which is an essential aspect in enhancing positive growth and development of the savings. The sectors incorporate various elements that help in boosting the economies by the use of the financial strengths that are presented in a given region in a bid to ensure that all the stakeholders in the commercial market focus towards enhancing positive growth. Considering that one of the setbacks of economic growth entails a financial crisis, it is necessary that countries focus on establishing measures that may help in overcoming a financial crisis that may affect a given region. The strategies to overcome such crisis should focus towards enhancing the level of economic awareness, which helps in creating some level of preparedness in times of a financial crisis.

The financial crisis experienced between 2007 and 2009 was one of the significant economic challenges that majority of the countries around the world encountered, which threatened their financial positioning significantly. The financial crisis affected some of the big financial institutions operating within the United States some of which ended up filing for bankruptcy due to the financial crisis. The effects of the financial crisis in the financial institution depended on the level of strategies implemented by the institutions to deal with the occurrence of such situations (Ba, 2017). Although the financial crisis affected the entire global economy, the financial institutions with some levels of strategies to deal with such a crisis experienced a minimal effect compared to those that did not have any measure to deal with a financial crisis. This indicated that it is necessary for the financial institutions to invest in measures that help in forecasting business trends of the global economies in a bid to overcome the cases such as bankruptcy owing to an occurrence of a financial crisis.

The focus of this report is to evaluate one of the commercial banks, which was considered as being "too big to fail" during this particular crisis. The commercial bank in focus is PNC Financial Services Group, Inc., which participants significantly in Emergency Economic Stabilization Act of 2008 (EESA). The analysis will focus on trying to evaluate some of the risks that the commercial bank undertook as part of its engagements during the 2007 and 2009 financial crisis. The financial crisis affected the commercial bank thereby leading to a significant downfall-affecting majority of the operations undertaken within the institution (Kaya, 2017). The paper will focus on outlining how the risks played an essential part in shaping the economies of the region and describe the key recommendations that were drawn from the lessons learned from the effects of the financial crisis that affected the global economy.

Brief Discussion of the Firm 

PNC Financial Services Group, Inc., otherwise referred to PNC Financial, is a bank holding company offering a wide array of financial services. The company operates in approximately 19 states within the United States with a market share of about 36.8% of the total banking sector in the country (Caban, 2018). Currently, PNC Financial operates approximately 2,459 branches and over 9,000 ATMs countrywide, which has helped towards building its capacity for overall performance. Some of the essential financial services that PNC Financial focuses on include asset and wealth management, estate planning, and loan servicing among other critical financial services in the banking sector. The company has embarked on a process in which it has worked towards building its portfolio with the aim of ensuring that it positions itself as a leading financial brand within the United States.

According to information on the financial sector in the United States, PNC Financial is listed among the largest banks in the United States, as well as, the fifth regarding branches and ATMs it operates. The bank boasts of a customer database of over 200,000 customers, which makes it the fourth largest bank in the country regarding customers when compared to some of the other financial institutions in the country. One of the critical challenges that PNC Financial has been facing revolves around a huge debt burden, which has exposed it to severe issues in its bid towards highlighting its financial health.

Since the financial crisis, PNC Financial has been working hard towards rebuilding its financial health focusing much attention on scrutiny of its borrowers with the aim of ensuring that it engages in what it describes as ‘safe financial practices.' According to the company financial report for 2017, the company had a loan account of $220 billion in outstanding loans, which is significantly high when compared to some of the leading financial institutions in the United States (Caban, 2018). The categorizations of the loans are $147 for commercial loans and $73 for consumer loans. That has not only worked towards creating excessive risks for the company regarding financial engagements but has also helped towards enhancing the bank's capacity to offer expected financial services.

Whether the Firm took Excessive Risks 

An analysis of PNC’s engagement during the 2007 to 2009 financial crisis indicates that the bank undertook excessive risks, which warranted the need for the company to require funding from the TARP program. The TARP program was set up under the Emergency Economic Stabilization Act of 2008 (EESA) as part of ensuring that financial institutions would be accorded a leeway from which to build their business positions if the critical face challenges. In the case of PCN, its engagement in risky business practices exposed the company to the broad array of economic difficulties considering that it became hard for the bank to manage its loan account. Additionally, it also became challenging for the bank to maintain its overall structure of performance due to the impacts associated with the financial crisis.

One of the notable aspects that can be seen from the financial crisis is that majority of the ‘big' commercial banks considered themselves as have lower risks of being exposed to financial liabilities associated with the disaster (Drake, Neale, Schorno, & Semaan, 2017). Thus, this created a situation where a majority of these banks engaged in financial practices that would later expose them to severe challenges in meeting their financial obligation. That is the case for PNC Financial considering that the commercial bank found itself in a position where it was not able to recover a majority of its debts attributed to the sharp decline in the price of mortgages. Additionally, the company also experienced a significant challenge in refocusing its financial principle services considering that it was facing a problem in trying to meet its expected margins.

Factors Influencing my Decision 

My analysis of PNC Financial highlights several key factors, which I believe are essential towards influencing my decision, as has been indicated above, where I think that PNC took excessive risks during the financial crisis. Some of the critical factors that I have noted from this commercial bank include:

Acquire Cleveland-based National City Corp and Citizens National Bank of Laurel, Maryland 

The first factor that indicated that PNC Financial was taking excessive risks was its decision to acquire National City Corp for a total price of $5.2 billion in October 2008 during the height of the financial crisis (Adebambo, Bockman, & Yan, 2015 ). According to a review of the statement by the top-level executives at the commercial bank, the decision for the acquisition was driven solely by the need to improve its capacity regarding delivery abilities. The decision by the top-level executives at the company meant that PNC would need to restructure its financial positioning with the aim of ensuring that it meets its set out obligations. From that perspective, this said that the bank required to engage in more financial dealings, thus, exposing it to the effects of the financial crisis experienced.

On the other hand, the acquisition of the Citizens National Bank of Laurel, Maryland in September 2007 was also a key factor to consider in defining the risks that PNC Financial was taking and the impacts this would have on its financial health. During the beginning of the financial crisis, a majority of the smaller banks experienced a challenge regarding liquidation. Thus, this created a situation where a majority of these banks would file for bankruptcy or embark on a process of finding prospective investors. In the case of Citizens National Bank, Maryland, PNC Financial believed that the acquisition of the bank would help increase its portfolio for an overall improvement regarding performance structure.

Excessive Lending 

The second key factor that has influenced my decision to indicate that PNC Financial had taken too many risks from a financial point of view revolves around the fact that the bank was involved in excessive mortgage lending. The primary factor that contributed to the occurrence of the financial crisis between 2007 and 2009 was the fact that the housing prices in the United States dipped significantly (Foo & Witkowska, 2017). Thus, this created a situation where a majority of the mortgage owners were unable to pay for the mortgages due to the overall challenge that the financial market experienced. Additionally, this also created a situation where most of the commercial banks were unable to recover their mortgages considering that the price of these mortgages had dropped by a significant margin.

Ramifications of the Firm Receiving TARP Funds 

The decision by PNC Financial to receive funding from the TARP program exposed it several significant consequences, which are essential to consider in determining the overall implications of the funds on the company's performance. These ramifications include:

A boost in Financial Positioning 

The initial decision by the government to set up the TARP program would help in buying assets that commercial banks considered as being ‘toxic' regarding financial liability. During the financial crisis between 2007 and 2009, the United States experienced a situation where the program was necessary towards enhancing its capacity for boosting performance considering that it meant that commercial banks would sell their mortgages, which had lost value due to the crisis. In the case of PNC Financial, the funding from the TARP program was essential towards ensuring that the company would be able to meet its financial obligations during that particular period (Foo & Witkowska, 2017).

Increased Scrutiny from the Federal Government 

One of the key aspects to note is that setting up of the TARP program provided the government with a platform from which to scrutinize the performance of the financial sector in the country. The United States government believed that lack of scrutiny exposed the nation to a severe financial crisis, which threatened the country's economic positioning significantly. From that view, one of the critical requirements of receiving funds from the TARP program is that commercial banks would open themselves up to increased scrutiny. For PNC Financial, this was one of the outcomes of the decision for the business bank to receive these funds from the TARP program.

Regulation of the Financial Market 

PNC Financial is one of the largest banks in the country was expected to maintain its overall position based on its capacity towards ensuring that it continues some form of the structure of the performance. However, the decision by the top-level management at PNC Financial to receive these funds meant that the financial markets in the country were in a serious challenge due to the crisis. Consequently, this created the need for the government to intervene with the intention of regulating the financial market in the United States. The government indicated that the decision to restrict the financial market in the country would help towards cushioning investors from losses arising from investment in the banking industry.

Actions to Prevent Future Financial Crisis 

Based on the outcomes of the financial crisis and the impacts that it had had on the company, PNC Financial undertook several activities that would be of value towards ensuring that it was protected from exposure from the effects of the future financial crisis. Some of the actions that the bank undertook include:

In-depth Evaluation of Borrowers 

PNC Financial set out new guidelines that would define its decisions to engage in lending especially when dealing with risky borrowers as a way of ensuring that the company would be protected from any financial liabilities. The financial crisis resulted from the passing of housing legislation that would see the number of mortgages in the country increased by over 200%. The bill indicated that commercial banks were obligated to ensure that they offered mortgages regardless of whether a borrower was risky for the institution. In a bid to changing this position, PNC Financial set out a new structure to define its evaluation of borrowers to determine the borrowers that would support the bank’s financial positioning.

Linking with other Financial Institutions 

On the other hand, PNC Financial embarked on a process that would see it relate to other financial institutions in the country with the aim of ensuring that it builds its capacity to deliver the expected results. One of the critical challenges that PNC Financial experienced during the evaluation of its borrowers was lack of sufficient avenue from which to review borrowers' trends regarding borrowing and repayment (Ba, 2017). Thus, this meant that the company needed to come up with a new structure of evaluation of its borrowers, therefore, creating the need for having to create a link with other financial institutions.

Size and Scale of the TARP Program 

The Troubled Asset Relief Program (TARP) program is a program set out by the United States government with the sole intention of buying ‘toxic' assets from financial institutions as a way of limiting exposure to a financial crisis. Regarding its size, the TARP program has the authority of expenditure for up to $700 billion, thus, meaning that it has the capacity of covering the overall expectations within the financial sector of the economy (Black & Hazelwood, 2013). The program seeks to evaluate the global economic challenges that commercial banks are experiencing, which would act as a determinant of its decision to buy some of the assets.

Regarding its scale, the TARP program was set out in a way to cover financial liabilities within the banking sector in the United States. The government focused much of its attention on the idea of finding a program that not only seeks to ensure that the financial sector remains stable but also sought to build on the stability of the commercial banks. The scale of the TARP program can cover all notable liabilities within the financial sector, as well as, ensuring that dealing with the economic challenges occurring within commercial banks. The long-term effect of this program is that it seeks to provide that financial institutions build on their capacity towards ensuring that they can liquidate regardless of the economic challenges that they experience as part of their exposure to the market.

Advantages of the TARP Program 

A review of the TARP program indicates this program presents several key benefits, which are essential to determine in a bid to evaluate its value within the United States financial market. Some of the benefits include:

Reduce Risks for Financial Institutions 

The TARP program has played a crucial role towards reducing risks for financial institutions, as it has created a situation where a majority of the financial institutions can sell off their assets regardless of them being ‘toxic (Stunda & Wisenbaker, 2013).' The TARP program is expected to build overall capacity for the financial market in the country considering that it provides leeway for commercial banks if they find themselves exposed to severe financial liabilities based on their financial practices and lending abilities.

Encourage Investment 

The TARP program has played a crucial role towards encouraging investment within the financial market in the United States, as it acts as a cushion towards ensuring that investors are well positioned to achieve their expected returns on investment. When reflecting on the overall structure of investment, investors tend to weigh the financial risks that they would experience considering that this is a critical element of considering in their decisions. The introduction of the TARP program played a central role towards ensuring that majority of the investors coming into the United States understood the cushion that the government had set out for the financial market (Black & Hazelwood, 2013). The expected effect of the program is that it will work towards introducing a new structure of performance within the financial market to increase the demand for financial services.

Disadvantages of the TARP Program 

Alternatively, the TARP program presents several essential difficulties, which are vital to consider in determining its viability regarding usage within the financial market in the United States. Some of the disadvantages noted include:

Favoring the ‘big’ Financial Institutions 

The first notable disadvantage of the TARP program is that it sought to create an uneven platform from which to offer bailouts to financial institutions considering that it sought to prioritize the ‘big' financial institutions. The setting up of the TARP program sought to create a platform from which the financial market in the country would restructure itself with the aim of building its capacity through the bailout (Calomiris, C. W., & Khan, 2015). However, the decision to favor the ‘big' institutions meant that majority of the commercial banks would suffer essential impacts associated with the financial crisis.

Creating the Wall Street Mentality 

The second notable disadvantage of the TARP program is that it created what would be described as the Wall Street mentality in which companies operating within the financial market would engage in business practices that expose them to risks (Calomiris, C. W., & Khan, 2015). Most of the financial institutions in the United States would find themselves in a position where they would engage in risky business dealings. The central aspect for them to consider is that the government, through the TARP program, would help towards offering a bailout. From that perspective, this reduces the need for the financial companies to work towards lowering their business risks. The long-term effect that this is expected to have it that it will create a situation where the banking industry would decrease regarding its overall viability (Li, 2013). Ultimately, this would have a significant impact on investments considering that it would become harder for investors to invest in the United States financial market.

Impacts of Dodd-Frank Regulatory Reform Bill 

The enactment and signing into law of the Dodd-Frank Wall Street Reform and Consumer Protection Act by President Obama in 2010 was considered as one of the notable efforts by the government towards cushioning consumers from financial loses in the event of a crisis. The enactment of the act had several significant impacts on the commercial market in the country, which are essential to evaluate.

Increased Financial Stability 

One of the critical authorities created from the Dodd-Frank Wall Street Reform and Consumer Protection Act was the Financial Stability Oversight Council, whose leading role was to oversee the financial market to ensure that it maintains the highest levels of stability (Piotrowski & Guyette, 2011). Financial stability is one of the critical elements associated with the performance of an economy, as it seeks to ensure that investors gain confidence in the market. By creating the Financial Stability Oversight Council, the government sought to create an avenue from which to build on the financial stability of the country.

Transparency and Accountability 

The Dodd-Frank Wall Street Reform and Consumer Protection Act created a platform from which commercial banks operating within the United States would understand the need for having to maintain transparency and accountability in their financial dealings . The act introduced new structures to govern payments, credit swaps, and asset lending among other economic elements of the market. The principal focus of this government was to ensure that commercial banks understand the need for them to improve their transparency in a bid to reducing the possibility of a financial crisis in future.

Government Oversight 

The enactment of the act also paved the way for government oversight within the financial market considering that this is one of the critical aspects that seeks to define the economic performance. The United States government recognized the fact that lack of oversight was one of the essential issues that contributed to the occurrence of the financial crisis, as it became much harder for the government to evaluate the economic dealing with in the country stability (Berger & Roman, 2015). The enactment of the act sought to strengthen the idea of corporate governance through government oversight considering that this would be of value toward reducing the possibility of financial crises in future.

Summary and Conclusion 

The financial crisis, which occurred between 2007 and 2009, was one of the notable economic events experienced within the 21 st century affecting a majority of the countries around the world. The effects of this crisis can be seen from the fact that some of the commercial banks operating within the United States market experienced a challenge in meeting their financial obligations. Although the financial crisis impacted the entire global economy, the financial institutions with some levels of strategies to deal with such a crisis experienced a minimal effect compared to those that did not have any measure to deal with a financial crisis. In the case of PNC Financial, which is one of leading commercial banks in the United States, the decision to take excessive risks exposed the bank to severe financial liabilities. From this analysis, the main conclusion that can be seen is on the issue of strategic approaches when dealing with financial obligations. Lack of a structural economic approach created a situation where PNC Financial experienced severe financial risks.

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