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The Efficiency in the Banking System of the US - Coursework Example

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"The Efficiency in the Banking System of the US" paper describes the industrial characteristics of the market, an evaluation of the key environmental factors that derive the market besides reviewing the existing empirical studies that have been conducted on bank efficiency and competition in the US…
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The Efficiency in the Banking System of the US
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Download file to see previous pages The overall riskiness of the banking system can impact the whole financial system of any country thus it is often argued that the monetary policy authorities shall ensure that the financial system remains stable and does not create spillover effects on other sectors of the economy.

Historically, during the last few decades of the previous century, the deregulation of the banking sector was advocated in order to achieve more efficiency. As a result of the de-regulation process, banking firms started to expand and took excessive risks which ultimately resulted in their downfall in the current financial crisis. However, until the Second World War, the US banking sector was heavily regulated. (Rothbard,2002). During this period, market concentration in the banking system of the US greatly supported the booming manufacturing sector of the economy. (Mitchner & Wheelock,2010).

The current financial crisis clearly indicates towards the assessment of the efficiency of the banking system of any country so that proper steps can be taken to make sure that the impact of future adverse events remains within control. The question therefore also arises as to how to measure the efficiency of a banking system and how to evaluate it to make an assessment of the overall riskiness of the system and its potential impacts on other sectors of the economy.

One of the important characteristics of the US Banking system is the fact that it is a fragmented market that is equally dominated by smaller as well as large banking institutions. (Keeton, 2009). Smaller banking institutions mostly work on the regional level whereas large banks such as Citibank have an international presence too. Thus there are three types of banking institutions that are present within the system i.e. those banks which are established under the Federal law, banks established under the State Law and private institutions. This bifurcation of the banking industry makes it more fragmented in nature and allow it to compete on a various competitive basis. ...Download file to see next pagesRead More
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