BANKING INDUSTRY

Banking Industry



Banking Industry

Introduction

The profound transformation of the banking industry over the past 25 years has been accompanied by radical changes in the regulatory system in the industry. Whatever may have been the relations between the two processes, the banking industry today is characterized by a concentrated structure that offers a variety of payment services and financial services. In turn, the regulatory system is characterized by an array of tools to maintain stability in the industry, in particular to prevent systemic risk. Indeed, the effectiveness of regulation is still a matter of intense public debate and academic analysis (Goldthwaite, 2009). In the current scenario of recession, which was primarily rooted in the ineffective banking practices, the proposition of deregulating the banking system is highly researched.

Recent recession created a disastrous change in global economies. Nearly all sector of the economy are affected by the economic crises. This paper explores the costs and benefits of intermediation in the banking system, the regulation in the banking industry and also the ongoing financial crisis since 2007. In line with the proposed frameworks at the institutional and governmental level to deal with banking regulation and crisis, this paper also suggest policies to manage a recession.

Costs and Benefits of Intermediation from Banks Perspective

From the perspective of Bank, the costs of intermediation included the information cost. For case in point, the cost of the lender's credit assessment, the cost of deciding the proper interest rate, and the transaction cost which is occurred in the standard contracts. The intermediations could take advantage of the economies of scale and then reduce the costs f the banks. Bank intermediation endorses the money of savers and lends to investors. The bank owes money to savers (depositors) and what he should investors (holders of loans or credits). By contrast in financial intermediation savers and investors are related through the financial markets. In them, there are some brokers who, unlike what happens in the old system, do not own the money from these transactions as they are limited to facilitate contact between the two parties through financial markets. Financial markets are the essence of the financial system, and are those markets where only employ financial assets, that is securities or rights convertible into cash tradable goods.

Costs and Benefits of Intermediation from Customer Perspective

From the perspective of customers, it can be said that the direct lending is more risky and less liquid. Moral hazards caused by asymmetric information might lead the lenders to cannot take their money back. As a contract, the intermediations can provide liquidity services for lenders and make the process risk free. The economic or commercial intermediation intermediation's role as an intermediary to link two individuals or legal entities with complementary interests; for example, a consumer with a proposed purchase and a seller of goods or services for which the consumer; an employer and provider of a post a job applicant with the skills sought by this employer. Sociological literature as well as economic growth highlights trades so-called commercial ...