Question

benefit and disadvantage from decreasing the competition between banks in an economy .Explain your reasoning .

Answer 1

Answer -

The benefits from banks decreasing competition are -

1 - In case of decreased competition , small and medium enterprises are likely to get more chances of getting the good amount of finance. This is because the banks are ready to take a greater amount of risk. Hence good arrangement of finance could be made.

2 - The regulation of the banks can better be done if the competition is lesser . Hence the efficiency can be improved.

Disadvantages -

1 - The interest rate in the market can get too high in the process of earning the profits over the lending.

2 - In the case of reduced competition , the banks sometime involve themselves in the risky loans in order to earn good profits. This many a times leads to bank runs because of riskier loans .