StudentShare solutions
Triangle menu

Financial intermediation - Essay Example

Not dowloaded yet

Extract of sample
Financial intermediation

It was based on the efficiency hypothesis model and was distinguished from the imminent failure model. After analyzing 33 mergers during the 1867-1935 period, the author found that the consolidation and integration (which result as consequences of mergers and acquisitions) reduce systemic risk. An important variable in this finding is the identification of the role of diversification in the dilution and management of risks. The study also proposed the empirical validity of concentration-stability hypothesis as a framework for explaining the stability of Canadian banks. It was found that strong concentration of banks, which came as an offshoot of mergers and acquisitions, was a strong predictor of stability. What is good about the paper The paper is significant for several reasons. It contains important insights on the developmental evolution of the Canadian banking sector. The author has also proposed and explained insights that could enrich the extant literature on the positive impact of mergers and acquisitions (M&As). The successful use and evaluation of hypotheses and the systematic assessment approaches included can provide helpful insights to researchers interested in the same or in related research topics. These constitute the reasons why it is worthy of publication. This section will explain this in detail. An important insight postulated by the study is the explanation why the Canadian banking system outperformed the United States banking system during the Great Depression (p.6). The author was able to provide important evidences, most particularly, the argument that Canada avoided the crisis by maintaining a banking system typified by risk diversification through branching (p.6). This aspect in the study contributes an insight to the body of literature in regard to the incidence of bank failures, vulnerabilities and risks that could be avoided. The emerging principle is that mergers have cushioned the Canadian banking system from the Great Depression by diluting the risks. Here, a theoretical evidence was presented: the cases of the cross-province acquisitions from 1900-1931led to risk diversification because the bulk of business for each bank in a consolidated financial institution is based on its home province, hence, the risk for the entire organization is allocated according to its branches, operating in their respective locations. Furthermore, the study also explained the differences between mergers and acquisitions than simply branching out. If the bank is concerned with risks or is interested with diluting it, branching would be an option because it also meant the diversification of operation across Canada. However, it was explained how M&As have different degree of risk exposure than branching, effectively classifying one from the other. If one does think about it, mergers and acquisitions diversify through integration and accumulation of resources whereas branching diversifies by expanding and spending resources. In the former, there is an inward flow of resources where the latter sees an outflow. This is the reason why in the study's comparative analysis, it was found that "out of the 10 chartered banks that remained in business in 1935, six had been involved in acquisitions," and that "only one out of the 26 failed banks was involved in bank consolidation" (p.9). The study used Fisher's exact test to evaluate the relationship it revealed that bank consolidations did not result or ...Show more

Summary

REFEREE REPORT: Bank Consolidation and Stability: The Canadian Experience, 1867-1935 Summary Bank Consolidation and Stability: The Canadian Experience, 1867-1935 is a study conducted by _ investigating the relationship between consolidations after mergers and acquisition and the stability in the Canadian financial industry…
Author : maximilian62
Financial intermediation essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Financial intermediation"
with a personal 20% discount.
Grab the best paper

Related Essays

Financial Markets and Risks
The whole financial system can collapse almost instantaneously, a system that has been in operation since even before man could read or write, has collapsed yet once more in 2007. This report tries to shed a light on a bank’s operations and illustrates how even diminutive factors can lead a bank to failure if neglected.
4 pages (1000 words) Essay
Financial intermediation
Student's Name & Course Number: Professor's Name: Money and Business (Financial Intermediation) 20 July 2011 What is Financial Intermediation - In its simplest definition, it means acting as sort of a bridge between people who have excess funds (savers, depositors and lenders) and those who do not have funds but need the funds (borrowers or debtors).
3 pages (750 words) Essay
Financial intermediation
13 Interpretation of the results 14 Summary and final recommendation 15 Bibliography 16 Summary In this article the estimated results of the merger and acquisitions of banks Canada, during 1867-1935 have been studied. It is stated that this activity supports the concentration-stability hypothesis and it is analysed.
12 pages (3000 words) Essay
Cost of Financial Intermediation
Financial intermediation has a cost and that cost is reflected in bank rates and overhead expenditures incurred by banks. Bank rates, however, are not determined in isolation or only from the perspective of profit maximization by the banking sector. These rates are impacted by many other economic and statutory issues pertaining to a particular economy and such issues may vary widely from economy to economy depending upon the administrative attitude towards matters of equanimity in various sectors of the economy, especially the banking sector itself.
12 pages (3000 words) Essay
European financial market
Pooling of funds is one of the better tools for management to use in order to maximize profits. The paragraphs below will explain what pooling of funds(Reilly, 1997) is all about and also what financial intermediaries like banks (Collins, 1992) do. POOLING OF FUNDS.
7 pages (1750 words) Essay
The Role That Financial Intermediaries Play
The most fundamental contribution that any financial system makes is to channel resources from individuals and companies with surplus resources to those with resource deficits. The financial system not only satisfies savings needs of the economy but also facilitates the accumulation of investment capital that is critical to growth and development.
2 pages (500 words) Essay
The Concepts of Financial Intermediation
Fundamentally, we may differentiate these principles according to three arguments on the existence of financial intermediaries: A. The argument on informational asymmetries - Market imperfections are generated because of the informational asymmetries like divergence from the neoclassical structure of financial system.
10 pages (2500 words) Essay
The Theories of Financial Intermediation
Basically, we may distinguish these principles in accordance to three arguments on the subsistence of financial intermediaries: Market imperfections are produced because of the informational asymmetries like deviation from the neoclassical organization of financial system.
9 pages (2250 words) Essay
What is the role of transactions costs and asymmetric information in the financial intermediation process In your answer make reference to the theories of financial intermediation, and the problems of adverse selection and moral hazard
Simultaneously, the criticality of financial intermediaries has also been subjected to continuous scrutiny that has leveraged the working pattern of the global financial market to a large
10 pages (2500 words) Essay
Financial Intermediation
With this concern, the study of Ariss (2010) would help to determine the implications about the degree of market power, cost as well as profit
9 pages (2250 words) Essay
Get a custom paper written
by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT
Comments (0)
Rate this paper:
Thank you! Your comment has been sent and will be posted after moderation