Contact Us
Sign In / Sign Up for FREE
Go to advanced search...

Competition and financial stability - Essay Example

Comments (0) Cite this document
COMPETITION AND FINANCIAL STABILITY By Lecturer: Institution of Affiliation: City and State: Date: Competition and Financial Stability Introduction Financial stability and competition are the main concerns in the current banking sector policy issues across the globe…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER93.1% of users find it useful
Competition and financial stability
Read TextPreview

Extract of sample "Competition and financial stability"

Download file to see previous pages The competition is always seen as a requirement necessary for efficiency of the banking system. Although varied theoretical and empirical studies have attempted to argue that monopoly offer banks higher incentives to improve their financial performance, competition in the banking sector have also enabled banks to compete favorably; thus enabling banks to achieve their demanding needs effectively (Schinasi and International Monetary Fund, 2006). This is because of the notion that vulnerability and restraints on competition are necessary for preserving the stability of the banking system in the current financial market; therefore, the essay offers a critical assessment of the trade-offs between competition in the banking system and financial stability. Advantages of Competition Competition is desirable in the banking system because it contributes to increased competitive business performance across the banking sector (Marinc, 2012). The charter-value for competition stability theory assumes that the more concentrated and less competitive banking systems, the higher chances of becoming more stable. The contrasting perspective to this theory is that a more concentrated banking structure may lead to more bank frailty. Boyd, De Nicolo and Jalal (2010) argue that market control in banking system increases profits, but bank steadiness ignores the prospective impact of market powers for banks. The authors argue that the higher interest rates in the banking sector may induce the banking industries to assume greater risks; hence, they find a positive relationship between concentration and bank fragility (Kohn, 2003). Many banking system support competition feebleness and this had significantly contributed to financial volatility in many banks across Canada and the UK. Therefore, the less bank rivalry, the less credit rationing and higher chance of malfunction in case loans are subjected to multiplicative reservations. Competition and higher level of concentration in the banking sector can also create a positive impact on liability menace. Boyd, De, Jalal and International Monetary Fund (2009) argue that less competition in banking system can contribute to more financial stability in case information about the probability distribution of liquidity of the depositor is private. Allen, Carletti, Gale and Centre for Economic Policy Research (2011) assert that it is crucial to prevent banks from taking excessive risks in the competitive markets. Hence, the deposit interest rate ceilings are vital even with capital requirements. Beck, Beck and World Bank (2008) argues that concentration is not a consistent rivalry signal in the banking sector; thus, the bank illiquidity can augment in any fiscal market structure. Therefore, lower competition in the banking system is crucial because it enables banking relationships to endure for a long period. Drawbacks of Competition Competition in the financial market can impact steadiness in the banking system in diverse ways; first, competition can impact financial stability is through the interbank market system and through the payment system channels. Allen and Gale (2000) argue that perfect competition can prevent banks from offering liquidity to other banks that have been strike by short-term liquidity shortage. Therefore, there is no bank that will have adequate incentive to offer liquidity to the banks that have problems in case all banks are price takers. ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
(“Competition and financial stability Essay Example | Topics and Well Written Essays - 2000 words”, n.d.)
Competition and financial stability Essay Example | Topics and Well Written Essays - 2000 words. Retrieved from
(Competition and Financial Stability Essay Example | Topics and Well Written Essays - 2000 Words)
Competition and Financial Stability Essay Example | Topics and Well Written Essays - 2000 Words.
“Competition and Financial Stability Essay Example | Topics and Well Written Essays - 2000 Words”, n.d.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Competition and financial stability

Service Management in Financial Services

 Measurement of quality is the result of the services provided to the customer with a prompt response based on the requirements and expectations. Quality of various processes must be managed so as to provide the customer with consistent, accurate and timely results. These results must be of high quality because various other factors pertaining to a business deal are dependent on them. Quality assures the customer of an appropriate service that includes an error-free transaction, access to accurate data pertaining to the specific schemes and services, transfer of credits, changes concerned with the membership and account details and an undoubted trust that helps in attaining the services time and again.

Financial se...
11 Pages(2750 words)Case Study

Financial Systems and Auditing

Financial auditing is one of the aspects that may be considered to the audit process, wherein the said audit objective pertains to the financial statements for the auditor to be able to express the opinion on the preparation of financial statements and in all material respects according to the financial reporting framework as identified.

The auditor’s responsibility is to form and express an opinion on the company’s financial statements, while the entity’s management is responsible for the preparation and presentation of financial statements. Audit, in general, may include the entire examination of the unit’s organization, the system as well as the function including the evaluation of the audit c...
7 Pages(1750 words)Term Paper

Corporate Financial Analysis: HBG UK Limited

Analyzing a company’s financial performance is crucial in determining the actual performance and investment potential of a business within the industry. The financial analysis not only gauges the internal but also the external aspects of a company.

Specifically, the use of financial ratios is considered as efficient indicators of a company’s financial situation and overall performance. Most of these financial ratios are calculated from the data provided within the financial statements of the company. Financial ratios are not used only in determining the performance of the company but also in comparison to other competitors’ financial status and the possibility of future bankruptcy.

HBG UK Li...
14 Pages(3500 words)Case Study

Marketing, Financial and Production Analysis of Vail Resorts

Finally, in 1966, the town of Vail was established. By 1985, George Gillett purchased Vail Associates and high-speed quad chairlifts were established to help the skiers get to higher elevations on the mountain. In 1992 Apollo Partners purchased Vail Associates, which in turn became Vail Resorts Inc., which was followed by the acquisition of ski resorts Keystone and Breckenridge. The acquisition of these ski resorts was a major change that helped Vail succeed in the long run by appealing to a broader market. Both Keystone and Breckenridge have lower prices than Vail Mountain and attract more single- and college-aged customers (Vail Resorts).

The company then added the Real Estate segment which comprised 6 percent of the...
9 Pages(2250 words)Case Study

Unmarried Parents: Financial Provisions

There was no evidence before the court to suggest otherwise. I would, therefore, suggest that the child be examined by an expert in child welfare to first determine whether or not the mother is ultimately right in her assessment that the disparity in the value of her parent’s home causes her some concern. It is also important to determine via a welfare expert whether or not relocating to one of the properties suggested by the father would adversely impact upon the child’s wellbeing. If an expert agrees that relocating and the disparity in the value of the parents’ homes are not matters of concern for the child then an appeal would be likely to succeed. I would go further to predict that the father’s origina...
6 Pages(1500 words)Case Study

Accounting & Financial Management

AWB’s operations can be categorized into areas ranging from ‘pool management services’ to ‘harvest financing’, and ‘International commodity management’. Only a company with such a big range of activities and financial outlays can become the benchmark for an equally big company like ‘Woolworth Limited’.

The performance of an entity can be better analyzed through its profitability analyses. The profitability ratios like Gross Profit ratio, Net Profit Margins, Return on assets (ROA), and Return on Equity (ROE). The calculations of such ratios are shown in the attached annexure. The Gross Profit ratio measures the percentage of each pound or dollar of sales remaining aft...
10 Pages(2500 words)Assignment

Financial Management Analysis of Rio Tinto Plc

Taking into consideration that Harmony is the sixth-largest in the world in the gold mining industry, the choice of Harmony God Mining Co. as a benchmark company is the most suitable and justifiable. Moreover, Harmony has also some investment stake in Rio Tinto, and this situation makes the company more suitable for the choice. At places, the benchmark company’s performances have been better than Rio Tinto, and thus Harmony has a competitive edge as well over Rio Tinto.

Profitability ratios like Operating Margin Ratio, Net Margin Ratio, Return on Assets (ROA), and Return on Equity (ROE) are the performance analyzer of any company. Profit Margin ratios show the relationship between profit and sales. Since profit ca...
8 Pages(2000 words)Case Study

Emergency Economic Stabilization Act of 2008 and How It Has Impacted the Financial Markets

Though there were objections from various quarters about the huge amounts of tax payer’s money being used in the bailout of huge corporates, the Act has been successful in moving the downturn towards a flat point and now has started slowly moving towards a recovery stage. The various programs under the EESA 2008 have played a significant role in the financial sector, housing mortgage, and banking institutions to save the institutions from complete disaster.

The Emergency Economic Stabilization Act is a huge taxpayer bailout designed to rescue the financial sector. The amount of money to be used is around $700 billion or $2000 per American citizen (Public mark up). Emergency Economic Stabilization Act of 2008 is al...
10 Pages(2500 words)Research Paper

The Effects of Financial Crisis on Supplier Selection Criteria of the Oil and Gas Industry Equipment Market

It is a difficult task to find those vendors who not only have the adequate quality and quantity of the needed raw materials but who also have an attitude of efficiency and display commitment to customer service (Sonmat, 2006). Further, organizations also strive to locate and select vendors who can be depended upon for long term relationship.

The number of factors or attributes desired from the vendor is vast, and different organizations and different industries place different importance on the attributes (Sonmat, 2006). Some of the vendor attributes may gain importance owing to the nature of the industry, for example, in the case of consumer perishables suppliers, like fresh vegetables or fruits, the buying firm would...
20 Pages(5000 words)Literature review

Management of Financial Institutions

The first paper is about International Banking Regulation. For banks that may want to spread across borders, the study gives an explanation of how the various policies and laws may affect its operations. The second paper in the study gives the various restrictions on the development of Pan-European bank mergers. It shows how regional liquidity shocks limit cross-border bank mergers. Thirdly, the study shows the various methods banks use in risk assessment when lending to less developed countries’ sovereign governments. It gives a topology that can help banks efficiently assess risks. An explanation of the multi-nationalization that is given in this paper comes with a model showing how applicable the profit maximization hypot...
8 Pages(2000 words)Literature review
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Competition and financial stability for FREE!

Contact Us