Competition in the banking industry

Docs en anglais | 8 pages | 17-07-2008 | Format : | Note : Non noté |

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Résumé

Nowadays, the banking industry has become significantly more competitive than in the past and competition is likely to increase further. New competitive pressures are emerging from abroad, owing to the liberalisation of international banking and capital flows, and as a result of the adoption of new banking technologies. However, there are some limits resulting from the particular characteristics of the banking system. The word « system » is the key because it emphasizes the natural element existing among banks, which form the core of the monetary system, channelling liquidity to the other participants of the financial system and managing the payments traffic in the economy.

Moreover, the public policy response to the question of whether competition among banks is good or bad has changed profoundly into viewing competition as predominantly positive since the mid 1970s. This has not only been limited to revitalising competition policy, but has also involved a profound change in the attitudes towards the regulation and supervision of banks, ranging from close controls to « market-friendly » minimum prudential standards and the enforcement of good internal risk management practices. Banks have also been forced to a significant extent to follow the same disclosure standards as other firms when it comes to capital markets.

Throughout this report, we will deal with competition in banking industry. We will show the different consequences of competition in this particular sector since competition presents both good and bad aspects at the same time.

In other words, we will present an essay trying to answer to the following question:

« Is competition in banking good or bad?
If bad, why and to what extent should it be limited and controlled? »

Indeed, after having shown the objectives and positive impacts of competition in banking, we will try to analyze the negative ones by explaining the reasons why competition can have bad repercussions on the banking system and to what extent it should be limited and controlled.

Table of contents:

Introduction

I) Positive effects of competition in the banking industry
II) Negative effects of competition in the banking industry
III) Control and limits to impose to competition in banking

Conclusion

Bibliography

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